of Ethics Online Collection: None
RULES OF CONDUCT
As amended March 31,1979
Definitions
The following definitions of terminology are applicable wherever such terminology is used in the rules and interpretations.
Client:The person(s) or entity which retains a member or his firm, engaged in the practice of public accounting, for the performance of professional services.
Council: The Council of the American Institute of Certified Public Accountants.
Enterprise: Any person(s) or entity, whether organized for profit or not, for which a CPA provides services.
Firm: A proprietorship, partnership, or professional corporation or association engaged in the practice of public accounting, including individual partners or shareholders thereof.
Financial statements: Statements and footnotes related thereto that purport to show financial position which relates to a point in time or changes in financial position which relate to a period of time, and statements which use a cash or other incomplete basis of accounting. Balance sheets, statements of income, statements of retained earnings, statements of changes in financial position, and statements of changes in owners' equity are financial statements.
Incidental financial data included in management advisory services reports to support recommendations to a client and tax returns and supporting schedules do not, for this purpose, constitute financial statements; and the statement, affidavit, or signature of preparers required on tax returns neither constitutes an opinion on financial statements nor requires a disclaimer of such opinion.
Institute: The American Institute of Certified Public Accountants.
Interpretations of rules of conduct: Pronouncements issued by the division of professional ethics to provide guidelines concerning the scope and application of the rules of conduct.
Member: A member, associate member, or international associate of the American Institute of Certified Public Accountants.
Practice of public accounting: Holding out to be a CPA or public accountant and at. the same time performing for a client one or more types of services rendered by public accountants. The term shall not be limited by a more restrictive definition which might be found in the accountancy law under which a member practices.,
Professional services: One or more types of services performed in the practice of public accounting.
Applicability of Rules
The Institute's code of professional ethics derives its authority from the bylaws of the Institute which provide that the trial board may, after a hearing, admonish, suspend, or expel a member who is found guilty of infringing any of the bylaws or any provisions of the rules of conduct.*
The rules of conduct which follow apply to all services performed in the practice of public accounting including tax and management advisory services except (a) where the wording of the rule indicates otherwise and (b) that a member who is practicing outside the United States will not be subject to discipline for departing from any of the rules stated herein so long as his conduct is in accord with the rules of the organized accounting profession in the country in which he is practicing. However, where a member's name is associated with financial statements in such a manner as to imply that he is acting as an independent public accountant and under circumstances that would entitle the reader to assume that United States practices were followed, he must comply with the requirements of rules 202 and 203.
A member may be held responsible for compliance with the rules of conduct by all persons associated with him in the practice of public accounting who are either under his supervision or are his partners or shareholders in the practice.
A member engaged in the practice of public accounting must observe all the rules of conduct. A member not engaged in the practice of public accounting must observe only rules 102 and 501 since all other rules of conduct relate solely to the practice of public accounting.
A member shall not permit others to carry out on his behalf, either with or without compensation, acts which, if carried out by the member. would place him in violation of the rules of conduct.
* Bylaws section 7.4.
Rules
Rule 101 -independence
A member or a firm of which he is a partner or shareholder shall not express an opinion on financial statements of an enterprise unless he and his firm are independent with respect to such enterprise. Independence will be considered to be impaired if, for example:
A. During the period of his professional engagement, or at the time of expressing his opinion, he or his firm
1.a. Had or was committed to acquire any direct or material indirect financial interest in the enterprise; or
b. Was a trustee of any trust or executor or administrator of any estate if such trust or estate had or was committed to acquire any direct or material indirect financial interest in the enterprise; or
2. Had any joint closely held business investment with the enterprise or any officer, director, or principal stockholder thereof which was material in relation to his or his firm's net worth; or
3. Had any loan to or from the enterprise or any officer, director, or principal stockholder thereof. This latter proscription does not apply to the following loans from a financial institution when made under normal lending procedures, terms, and requirements:
a. Loans obtained by a member or his firm which are not material in relation to the net worth of such borrower.
b. Home mortgages.
c. Other secured loans, except loans guaranteed by a member's firm which are otherwise unsecured.
B. During the period covered by the financial statements, during the period of the professional engagement, or at the time of expressing an opinion, he or his firm
1. Was connected with the enterprise as a promoter, underwriter, or voting trustee, a director or officer or in any capacity equivalent to that of a member of management or of an employee; or
2. Was a trustee for any pension or profit-sharing trust of the enterprise.
The above examples are not intended to be all-inclusive.
Rule 102-Integrity and Objectivity
A member shall not knowingly misrepresent facts and when engaged in the practice of public accounting, including the rendering of tax and management advisory services, shall not subordinate his judgment to others. In tax practice, a member may resolve doubt in favor of his client as long as there is reasonable support for his position.
Rule 201-General Standards
A member shall comply with the following general standards as interpreted by bodies designated by Council and must justify any departures therefrom.
A. Professional competence. A member shall undertake only those engagements which he or his firm can reasonably expect to Complete with professional competence.
B. Due professional care. A member shall exercise due professional care in the performance of an engagement.
C. Planning and supervision. A member shall adequately plan and supervise an engagement.
D. Sufficient relevant data. A member shall obtain sufficient relevant data to afford a reasonable basis for conclusions or recommendations in relation to an engagement.
E. Forecasts. A member shall not permit his name to be used in conjunction with any forecast of future transactions in a manner which may lead to the belief that the member vouches for the achievability of the forecast.
Rule 202-Auditing Standards
A member shall not permit his name to be associated with financial statements in such a manner as to imply that he is acting as an independent public accountant unless he has complied with the applicable generally accepted auditing standards* promulgated by the Institute. Statements on auditing standards issued by the Institute's auditing standards executive committee are, for purposes of this rule. considered to be interpretations of the generally accepted auditing standards, and departures from such statements must be justified by those who do not follow them.
* Ton generally accepted auditing standards are listed in Appendix A, page 43
Rule 203-Accounting Principles
A member shall not express an opinion that financial statements are presented in conformity with generally accepted accounting principles if such statements contain any departure from an accounting principle promulgated by the body designated by Council* to establish such principles which has a material effect on the statements taken as a whole, unless the member can demonstrate that due to unusual circumstances the financial statements would otherwise have been misleading. In such cases his report must describe the departure, the approximate effects thereof, if practicable, and the reasons why compliance with the principle would result in a misleading statement.
Rule 204-Other Technical Standards
A member shall comply with other technical standards promulgated by bodies designated by Council to establish such standards, and departures therefrom must be justified by those who do not follow them.
Rule 301-Confidential Client Information
A member shall not disclose any confidential information obtained in the course of a professional engagement except with the consent of the client.
This rule shall not be construed (a) to relieve a member of his obligation under rules 202 and 203, (b) to affect in any way his compliance with a validly issued subpoena or summons enforceable by order of a court, (c) to prohibit review of a member's professional practices as a part of voluntary quality review under Institute authorization, or (d) to preclude a member from responding to any inquiry made by the ethics division or trial board of the Institute, by a duly constituted investigative or disciplinary body of a state CPA society, or under state statutes.
Members of the ethics division and trial board of the Institute and professional practice reviewers under Institute authorization shall not disclose any confidential client information which comes to their attention from members in disciplinary proceedings or otherwise in carrying out their official responsibilities. However, this prohibition shall not restrict the exchange of information with an aforementioned duly constituted investigative or disciplinary body.
Rule 302-Contingent Fees
Professional services shall not be offered or rendered under an arrangement whereby no fee will be charged unless a specified finding or result is attained, or where the fee is otherwise contingent upon the findings or results of such services. However, a member's fees may vary depending, for example, on the complexity of the service rendered.
* See Appendix B, page 44.
Fees are not regarded as being contingent if fixed by courts or other public authorities or, in tax matters, if determined based on the results of judicial proceedings or the findings of governmental agencies.
Rule 401 -Encroachment
Repealed effective March 31, 1979.
Rule 501-Acts Discreditable
A member shall not commit an act discreditable to the profession.
Rule 502-Advertising and Other Forms of Solicitation
A member shall not seek to obtain clients by advertising or other forms of solicitation in a manner that is false, misleading, or deceptive. (As amended March 31, 1979.)
Rule 503-Commissions
A member shall not pay a commission to obtain a client, nor shall he accept a commission for a referral to a client of products or services of others. This rule shall not prohibit payments for the purchase of an accounting practice or retirement payments to individuals formerly engaged in the practice of public accounting or payments to their heirs or estates.
Rule 504-Incompatible Occupations
A member who is engaged in the practice of public accounting shall not concurrently engage in any business or occupation which would create a conflict of interest in rendering professional services.
Rule 505-Form of Practice and Name
A member may practice public accounting, whether as an owner or employee, only in the form of a proprietorship, a partnership, or a professional corporation whose characteristics conform to resolutions of Council. (See Appendix C, page 45.)
A member shall not practice under a firm name which includes any fictitious name, indicates specialization, or is misleading as to the type of organization (proprietorship, partnership, or corporation). However, names of one or more past partners or shareholders may be included in the firm name of a successor partnership or corporation. Also, a partner surviving the death or withdrawal of all other partners may continue to practice under the partnership name for up to two years after becoming a sole practitioner.
*A firm may not designate itself as "Members of the American Institute of Certified Public Accountants" unless all of its partners or shareholders are members of the Institute.
