1.

02 NOTES

I. The AICPA Code of Professional Conduct

A. Principles – provide ideal standards of professional conduct; not enforceable
against AICPA members
B. Ethical Principles
1. Responsibilities – exercise sensitive and professional moral judgments
2. Public Interest – serve the public interest, honor public trust, and
demonstrate commitment to the profession
3. Integrity – perform professional responsibilities with the highest sense of
integrity
4. Objectivity and Independence – be independent in fact and appearance in
providing auditing or other attestation services
5. Due Care – observe technical and ethical standards, improve competence,
and perform to the best of your ability
6. Scope and Nature of Services – follow Code of Professional Conduct in
determining scope and nature of services
C. Rules – represent minimum standards of ethical conduct; enforceable against
AICPA members
D. Interpretations of Rules of Conduct
1. Published by AICPA’s Division of Professional Ethics
2. Used when practitioners have frequent questions
3. May be used by a practitioner to justify a departure
E. Ethical Rulings
1. Published explanations and answers to questions about rules of conduct
2. Submitted to the AICPA by practitioners and others interested in ethical
requirements

II. Specific Rules of Conduct

A. Independence – a member in public practice shall be independent in the
performance of professional services as required by the standards
1. Financial interest in client
2. Immediate family
3. Former practitioners
4. Normal lending procedures
5. Joint relationship with client investor
6. Joint relationship with client investee
7. Director, officer, manager, or employee
8. Litigation between CPA firm and client
9. Bookkeeping services
10. Consulting and other nonaudit services
11. Unpaid fees
B. Integrity and Objectivity – member shall be free of conflicts of interest, shall not
knowingly misrepresent facts or subordinate his or her judgment to others
C. General Standards – member shall comply with the following standards:

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 1. Professional competence – undertake only those professional services that
can be completed with professional competence
2. Due professional care – exercise due professional care in the performance
of professional services
3. Planning and supervision – adequately plan and supervise the
performance of professional services
4. Sufficient relevant data – obtain sufficient, relevant data to provide a
reasonable basis for conclusions and recommendations
D. Compliance with Standards – must comply with the following standards:
1. Auditing Standards and PCAOB Standards
2. Statements on Accounting and Review Services
3. Statements on Standards for Attestation Engagements
4. Management Consulting Services Standards
E. Accounting Principles
1. GAAP is considered to be any statement proclaimed by an authoritative
body designated by the AICPA
2. CPAs must justify any departure from GAAP
3. Departure from GAAP is permitted IF following GAAP would make
statements misleading
F. Confidential Client Information – may not disclose any confidential client
information without the specific consent of the client. Exceptions are:
1. Subpoenas or summons enforceable by a court order
2. Review of papers related to an ethics division inquiry
3. Review of papers related to a peer review
4. Obligations related to technical standards
G. Contingent Fees
1. Fees to be determined upon a particular result
2. CPAs are forbidden to accept contingent fees for attestation services and
tax return preparation
H. Acts Discreditable
1. Retaining client records after they have been requested
2. Discrimination or harassment in employment practices
3. Noncompliance with standards
4. Negligence in the preparation of financial statements or reports
5. Solicitation or disclosure of CPA exam questions and answers
6. Failure to file a tax return or pay tax liability

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 I. Advertising and other forms of solicitation – false, misleading, or deceptive
advertising is prohibited. Examples of unacceptable advertising are:
1. Creates false or unjustified expectation of favorable results
2. Implies the ability to influence any court or similar body or official
3. Client is unaware that there is a likely chance that a stated fee will be
substantially increased
4. Other representations that are likely to cause a reasonable person to
misunderstand or be deceived.
J. Commissions and Referral Fees – compensation paid for recommending a
third party’s product or service to a client or recommending a client’s product
or service to a third party. Prohibited if the firm also performs:
1. Audit or review of financial statement for the client
2. Compilation of financials in which lack of independence is not disclosed
and the financials may be used by a third party
3. Examination of prospective financial information
K. Form of Organization and Name
1. Member may practice public accounting only in a form of organization
permitted by state law
2. CPA shall not practice public accounting under a firm name that is
misleading
3. Ownership of CPA firms by non-CPAs is allowed under certain conditions
4. Firm may not designate itself as a member of the AICPA unless all CPA
owners are members of the AICPA

III. Enforcement of Policies – principally involves the following groups:

A. State Boards of Accountancy – can revoke CPA certificate of license to
practice
B. AICPA Joint Trial Board – can suspend or expel members from the AICPA;
less serious and unintentional violations will normally require only corrective
and remedial action

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1.02 Ethical Principles Notes

1. Responsibilities – exercise sensitive and professional

moral judgments
2. Public Interest – serve the public interest, honor public
trust, and demonstrate commitment to the profession
3. Integrity – perform professional responsibilities with the
highest sense of integrity
4. Objectivity and Independence – be independent in fact
and appearance in providing auditing or other attestation
services
5. Due Care – observe technical and ethical standards,
improve competence, and perform to the best of your ability
6. Scope and Nature of Services – follow Code of
Professional Conduct in determining scope and nature of
services

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1.02 Specific Rules of Conduct Notes – Page 1

– A member in public practice shall be

independent in the performance of professional services as required by the standards

– Member shall be free of conflicts of

interest, shall not knowingly misrepresent facts or subordinate his or her judgment to
others

General Standards – member shall comply with the following standards:






Compliance with Standards – must comply with the following standards:

 Auditing Standards and PCAOB Standards
 Statements on Accounting and Review Services
 Statements on Standards for Attestation Engagements
 Management Consulting Services Standards

GAAP is considered to be any

statement proclaimed by an authoritative body designated by the AICPA; CPAs must
justify any departure from GAAP; departure from GAAP is permitted IF following GAAP
would make statements misleading

Confidential Client Information – may not disclose any confidential client information
without the specific consent of the client. Exceptions are:





– Fees to be determined upon a

particular result; CPAs are forbidden to accept contingent fees for attestation services
and tax return preparation

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1.02 Specific Rules of Conduct Notes – Page 2

and other forms of solicitation – false, misleading or

deceptive advertising are prohibited. Examples of unacceptable advertising are:
 Creates or unjustified expectation of favorable results
 Implies the ability to any court, or similar body or official
 Client is that there is a likely chance that a
stated fee will be substantially increased
 Other representations that are likely to cause a reasonable person to
misunderstand or be .

Acts – Examples of discreditable acts are:








and Fees – compensation

paid for recommending a third party’s product or service to a client or recommending a
client’s product or service to a third party. Prohibited if firm also performs:
 or review of financial statement for the client
 Compilation of financial statements in which lack of independence is not
disclosed and the financials may be used by a third party
 Examination of prospective financial information

Form of Organization and Name

 Member may practice public accounting only in a form of organization permitted
by state law
 CPA shall not practice public accounting under a that is
misleading
 of CPA firms by non-CPAs is allowed under
certain conditions
 Firm may not designate itself as a member of the AICPA unless all
are members of the AICPA

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1.02 Specific Rules of Conduct Notes – Page 1

Independence – a member in public practice shall be independent in the performance

of professional services as required by the standards

Integrity and Objectivity – member shall be free of conflicts of interest, shall not
knowingly misrepresent facts or subordinate his or her judgment to others

General Standards – member shall comply with the following standards:

 Professional competence
 Due professional care
 Planning and supervision
 Sufficient relevant data

Compliance with Standards – must comply with the following standards:

 Auditing Standards and PCAOB Standards
 Statements on Accounting and Review Services
 Statements on Standards for Attestation Engagements
 Management Consulting Services Standards

Accounting Principles - GAAP is considered to be any statement proclaimed by an

authoritative body designated by the AICPA; CPAs must justify any departure from
GAAP; departure from GAAP is permitted IF following GAAP would make statements
misleading

Confidential Client Information – may not disclose any confidential client information
without the specific consent of the client. Exceptions are:
 Subpoenas or summons enforceable by a court order
 Review of papers related to an ethics division inquiry
 Review of papers related to a peer review
 Obligations related to technical standards

Contingent Fees – Fees to be determined upon a particular result; CPAs are forbidden
to accept contingent fees for attestation services and tax return preparation

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1.02 Specific Rules of Conduct Notes – Page 2

Advertising and other forms of solicitation – false, misleading or deceptive advertising

are prohibited. Examples of unacceptable advertising are:
 Creates false or unjustified expectation of favorable results
 Implies the ability to influence any court, or similar body or official
 Client is unaware that there is a likely chance that a stated fee will be
substantially increased
 Other representations that are likely to cause a reasonable person to
misunderstand or be deceived.

Acts Discreditable – Examples of discreditable acts are:

 Retaining client records after they have been requested
 Discrimination or harassment in employment practices
 Noncompliance with standards
 Negligence in the preparation of financial statements or reports
 Solicitation or disclosure of CPA exam questions and answers
 Failure to file a tax return or pay tax liability

Commissions and Referral Fees – compensation paid for recommending a third

party’s product or service to a client or recommending a client’s product or service to a
third party. Prohibited if firm also performs:
 Audit or review of financial statement for the client
 Compilation of financial in which lack of independence is not disclosed and the
financials may be used by a third party
 Examination of prospective financial information

Form of Organization and Name

 Member may practice public accounting only in a form of organization permitted
by state law
 CPA shall not practice public accounting under a firm name that is misleading
 Ownership of CPA firms by non-CPAs is allowed under certain conditions
 Firm may not designate itself as a member of the AICPA unless all CPA owners
are members of the AICPA

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1.02 Ethical Principles Graphic Organizer

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1.02 Ethical Principles Graphic Organizer

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1.02 Specific Rules of Conduct Graphic Organizer – Page 1

Member in public practice shall Member shall be free of

be independent in the conflicts of interest, shall not
performance of professional knowingly misrepresent facts or
services as required by the subordinate his or her judgment
standards to others

Must comply with the following

Member shall comply with the standards:
following standards:  Auditing Standards and
 Professional PCAOB Standards
 Due professional  Statements on Accounting
 Planning and and Review Services
 Sufficient relevant  Statements on Standards for
Attestation Engagements
 Management Consulting
Services Standards

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 1.02 Specific Rules of Conduct Graphic Organizer – Page 2

May not disclose any confidential

client information without the
specific consent of the client.
 GAAP is considered to be any Exceptions are:
statement proclaimed by an  Subpoenas or summons
authoritative body designated enforceable by a court
by the AICPA order
 CPAs must justify any  Review of papers related to
departure from GAAP an ethics division inquiry
 Departure from GAAP is  Review of papers related to
permitted IF following GAAP a peer review
would make statements  Obligations related to
misleading technical standards

 Retaining client records after they have

been requested
 Discrimination or harassment in
 Fees to be determined upon a employment practices
particular result  Noncompliance with standards
 CPAs are forbidden to accept  Negligence in the preparation of financial
contingent fees for attestation statements or reports
 Solicitation or disclosure of CPA exam
services and tax return
questions and answers
preparation
 Failure to file a tax return or pay tax liability

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1.02 Specific Rules of Conduct Graphic Organizer – Page 3

False, misleading or deceptive Compensation paid for

advertising are prohibited. recommending a third party’s
product or service to a client or
recommending a client’s product
or service to a third party.

 Member may practice public accounting only in a form of

organization permitted by state law
 CPA shall not practice public accounting under a firm name that is
misleading
 Ownership of CPA firms by non-CPAs is allowed under certain
conditions
 Firm may not designate itself as a member of the AICPA unless all
CPA owners are members of the AICPA

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1.02 Specific Rules of Conduct Graphic Organizer – Page 1

Integrity and
Independence
Objectivity

Member in public practice shall Member shall be free of

be independent in the conflicts of interest, shall not
performance of professional knowingly misrepresent facts or
services as required by the subordinate his or her judgment
standards to others

General Compliance with

Standards Standards

Must comply with the following

Member shall comply with the standards:
following standards: Auditing Standards and
Professional PCAOB Standards
Due professional Statements on Accounting
Planning and and Review Services
Sufficient relevant Statements on Standards for
Attestation Engagements
Management Consulting
Services Standards

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1.02 Specific Rules of Conduct Graphic Organizer – Page 2

Confidential
Client Information

Accounting
Principles

May not disclose any confidential

client information without the
specific consent of the client.
Exceptions are:
 GAAP is considered to be any  Subpoenas or summons
statement proclaimed by an enforceable by a court
authoritative body designated order
by the AICPA  Review of papers related to
 CPAs must justify any an ethics division inquiry
departure from GAAP  Review of papers related to
 Departure from GAAP is a peer review
permitted IF following GAAP  Obligations related to
would make statements technical standards
misleading

Acts
Discreditable
Contingent Fees

 Retaining client records after they have

been requested
 Fees to be determined upon a  Discrimination or harassment in
particular result employment practices
 CPAs are forbidden to  Noncompliance with standards
accept contingent fees for  Negligence in the preparation of financial
attestation services and tax statements or reports
return preparation  Solicitation or disclosure of CPA exam
questions and answers
 Failure to file a tax return or pay tax liability

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1.02 Specific Rules of Conduct Graphic Organizer – Page 3

Advertising and
Commissions
Other Forms of
and Referral Fees
Solicitation

False, misleading or deceptive Compensation paid for

advertising are prohibited. recommending a third party’s
product or service to a client or
recommending a client’s product
or service to a third party.

Form of
7
Organization and
Name

 Member may practice public accounting only in a form of

organization permitted by state law
 CPA shall not practice public accounting under a firm name that is
misleading
 Ownership of CPA firms by non-CPAs is allowed under certain
conditions
 Firm may not designate itself as a member of the AICPA unless all
CPA owners are members of the AICPA

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1.02 Review Activity

Using PowerPoint, create a scenario showing ethical behavior and a

scenario showing unethical behavior for each of the specific rules of
conduct. Use appropriate clip art to enhance slides where possible.

Specific Rules of Conduct

Independence
Integrity and Objectivity
General Standards
Compliance with Standards
Accounting Principles
Confidential Client Information
Contingent Fees
Acts Discreditable
Advertising and Other Forms of Solicitation
Commissions and Referral Fees
Form of Organization and Name

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