PICPA Code of Professional Conduct
ET Section 203 - Accounting Principles
.01 Rule 203 — Accounting principles. A member shall not (1) express an opinion or state affirmatively that the financial statements or other financial data of any entity are presented in conformity with generally accepted accounting principles or (2) state that he or she is not aware of any material modifications that should be made to such statements or data in order for them to be in conformity with generally accepted accounting principles, if such statements or data contain any departure from an accounting principle promulgated by bodies designated by Council to establish such principles that has a material effect on the statements or data taken as a whole. If, however, the statements or data contain such a departure and the member can demonstrate that due to unusual circumstances the financial statements or data would otherwise have been misleading, the member can comply with the rule by describing the departure, its approximate effects, if practicable, and the reasons why compliance with the principle would result in a misleading statement.
[As adopted January 12, 1988.]
Interpretation Under Rule 203 – Accounting Principles
.02 203-1—Departures From Generally Accepted Accounting Principles
Reference to generally accepted accounting principles (GAAP) in Rule 203, Accounting Principles [sec. 203 par. .01], means those accounting principles promulgated by bodies designated by council, which are listed in appendix A, Council Resolution Designating Bodies to Promulgate Technical Standards. In the establishment of such principles, it is difficult to anticipate all circumstances to which such principles might be applied. There is a strong presumption that adherence to GAAP would, in nearly all instances, result in financial statements that are not misleading. Rule 203 [sec. 203 par. .01] recognizes that, upon occasion, there may be unusual circumstances when the literal application of GAAP would have the effect of rendering financial statements misleading. In such cases, the proper accounting treatment is that which will render the financial statements not misleading.
The question of what constitutes unusual circumstances, as referred to in Rule 203 [sec. 203 par. .01] is a matter of professional judgment involving the ability to support the position that adherence to a promulgated principle within GAAP would be regarded generally by reasonable persons as producing misleading financial statements.
Examples of circumstances that may justify a departure from GAAP are new legislation or the evolution of a new form of business transaction. An unusual degree of materiality or the existence of conflicting industry practices are examples of circumstances that would not ordinarily be regarded as unusual in the context of Rule 203 [sec. 203 par. .01].
[As amended June 30, 2012.]
.03 203-2 — Status of FASB, GASB and FASAB interpretations. Council is authorized under rule 203 [ET section 203.01] to designate bodies to establish accounting principles. Council has designated the Financial Accounting Standards Board (FASB) as such a body and has resolved that FASB Statements of Financial Accounting Standards, together with those Accounting Research Bulletins and APB Opinions which are not superseded by action of the FASB, constitute accounting principles as contemplated in rule 203 [ET section 203.01]. Council has also designated the Governmental Accounting Standards Board (GASB), with respect to Statements of Governmental Accounting Standards issued in July 1984 and thereafter, as the body to establish financial accounting principles for state and local governmental entities pursuant to rule 203 [ET section 203.01]. Council has also designated the Federal Accounting Standards Advisory Board (FASAB), with respect to Statements of Federal Accounting Standards adopted and issued in March 1993 and subsequently, as the body to establish accounting principles for federal government entities to rule 203 [ET section 203.01].
In determining the existence of a departure from an accounting principle established by a Statement of Financial Accounting Standards, Accounting Research Bulletin or APB Opinion encompassed by rule 203 [ET section 203.01], or the existence of a departure from an accounting principle established by a Statement of Governmental Accounting Standards or a Statement of Federal Accounting Standards encompassed by rule 203 [ET section 203.01], the division of professional ethics will construe such Statements, Bulletin or Opinion in the light of any interpretations thereof issued by the FASB or the GASB.
[As amended April 30, 2000.]
.05 203-4 — Responsibility of employees for the preparation of financial statements in conformity with GAAP. Rule 203 [ET section 203.01] provides, in part, that a member shall not state affirmatively that financial statements or other financial data of an entity are presented in conformity with generally accepted accounting principles (GAAP) if such statements or data contain any departure from an accounting principle promulgated by a body designated by Council to establish such principles that has a material effect on the statements or data taken as a whole.
Rule 203 [ET section 203.01] applies to all members with respect to any affirmation that financial statements or other financial data are presented in conformity with GAAP. Representation regarding GAAP conformity included in a letter or other communication from a client entity to its auditor or others related to that entity's financial statements is subject to rule 203 [ET section 203.01] and may be considered an affirmative statement within the meaning of the rule with respect to members who signed the letter or other communication; for example, signing reports to regulatory authorities, creditors and auditors.
[Effective November 30, 1993.]
.06 203-5—Financial Statements Prepared Pursuant to Financial Reporting Frameworks Other Than GAAP
Reference to GAAP in Rule 203 [sec. 203 par. .01] means those accounting principles promulgated by bodies designated by council, which are listed in appendix A. Financial statements prepared pursuant to other accounting principles would be considered financial reporting frameworks other than GAAP within the context of Rule 203 [sec. 203 par. .01].
However, Rule 203 [sec. 203 par. 01] does not preclude a member from preparing or reporting on financial statements that have been prepared pursuant to financial reporting frameworks other than GAAP, such as (a) financial reporting frameworks generally accepted in another country, including jurisdictional variations of International Financial Reporting Standards (IFRSs) such that the entity’s financial statements do not meet the requirements for full compliance with IFRSs as promulgated by the International Accounting Standards Board; (b) financial reporting frameworks prescribed by an agreement or a contract; or (c) an other comprehensive basis of accounting, including statutory financial reporting provisions required by law or a U.S or foreign governmental regulatory body to whose jurisdiction the entity is subject.
In such circumstances, however, the financial statements or reports should not purport that the financial statements are in accordance with GAAP, and the financial statements or reports on those financial statements, or both, should make clear the financial reporting framework(s) used.
[Effective June 30, 2012.]
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