Ethics Reminders for New CPAs

by Troy Cannode, CPA | Apr 21, 2020

DigJrnlEthics_250x383What are ethics? Dictionaries say ethics are a system of beliefs that control behavior, particularly a system based on morals. The AICPA has a code of professional conduct, and it states that members are obligated to act in a way that will serve the public interest, honor the public trust, and demonstrate a commitment to professionalism. As CPAs, this is our system of beliefs.

This article will address the fundamental principles of the code of ethics: integrity, objectivity, professional competence and due care, confidentiality, and professional behavior.

Integrity

The code of ethics states that integrity implies truthfulness and fair dealing. To act with integrity means to not issue reports, returns, and communications that the CPA believes contains a materially false or misleading statement, contains information or statements that were provided recklessly, or omits or obscures required information where such omission or obscurity would be misleading.

Objectivity

The fundamental principle of objectivity requires CPAs to not compromise their professional or business judgment because of bias, conflict of interest, or undue influence of others, and that they shall not undertake a professional activity if circumstances or relationships unduly influence the accountant’s professional judgment regarding that activity. KPMG has a professional judgment framework, published in 2011, that identifies four frequent biases: availability, anchoring and adjustment, overconfidence, and confirmation.

The availability bias stems from making decisions that rely heavily on information that is most memorable or easily accessible. Anchoring happens when an accountant gets committed to a preliminary number and adjusts that number without fully evaluating the entire body of evidence. The overconfidence bias occurs when someone overestimates his or her ability to perform a task. Confirmation bias is the tendency for decision makers to interpret evidence in ways that support preexisting beliefs.

Professional Competence and Due Care

The International Ethics Standards Board for Accountants (IESBA) code of ethics requires accountants to attain and maintain professional knowledge and skill at a level that ensures a client or employing organization receives competent professional service. This service should be based on current technical and professional standards. An additional requirement of professional competence requires a continuing awareness and understanding of relevant technical, professional, and business developments.

Acting with due care and diligence is to comply with the requirements of an assignment, carefully, thoroughly, and on a timely basis. CPAs shall make clients, employers, or other users of their services aware of any limitations that they may have. For example, if a client establishes a trust, and the CPA is not familiar with trust taxation or encounters a particular transaction that is outside his or her normal lane, there would be a requirement on the CPA to bring in a subject matter expert.

Confidentiality

An accountant in compliance with the ethical principle of confidentiality will be alert of the possibility of inadvertent disclosure. The CPA will also maintain confidentiality of information obtained within the firm or employing organization as well as information disclosed by the client, and will not disclose confidential information without proper and specific authority from the client. Say a potential investor in the client business calls the CPA asking for information about that business, unless the client gives permission to the CPA to disclose business information, the CPA wouldn’t be able to fulfill the request of the potential investor.

Confidentiality also entails not using information obtained for personal advantage or for the advantage of a third party, and not using that information after the relationship has ended. The code of ethics identifies three specific circumstances that allow disclosure of confidential information without violating the code of ethics: when law requires it, when the law permits disclosure and the client or employer authorizes that disclosure, and when there is a professional duty or right to disclose and law does not prohibit that disclosure.

Professional Behavior

Professional behavior under the code of ethics requires a CPA to comply with relevant laws and regulations and avoid any conduct that might discredit the profession. A CPA should not knowingly engage in any business, occupation, or activity that impairs or might impair the integrity, objectivity, or good reputation of the profession. Professional behavior also means not undertaking marketing or promotional activities that make exaggerated claims for the services offered by, or qualifications of, the CPA, or disparaging references or unsubstantiated comparisons to the work of others.

Applying Foundational Principles

A new CPA’s understanding of the fundamental principles of integrity, objectivity, professional competence and due care, confidentiality, and professional behavior are critical to embarking on a career steeped in ethical behavior. These principles will hold true regardless of the career path a CPA chooses. An assurance career in any size CPA firm will present numerous instances where objectivity is tested, but understanding the biases that prevent objectivity will allow new CPAs to remain objective and act in an ethical manner. For example, a CPA in a small regional tax firm will be tested on the fundamental principles of integrity and professional competence and due care. A tax practitioner’s integrity may be tested if clients attempt to not disclose all sources of income on a tax return. A CPA in business and industry might face pressure to misstate amounts in financial statements. It’s the CPA’s responsibility to report accurate information. If the CPA suspects a client is refusing to be honest, he or she must have the courage to step away from the engagement.

New CPAs will be challenged to maintain professional competence because of ever-changing accounting guidance and tax codes, but staying current on changes through continuing education helps CPAs maintain their professional competency. In the modern era of social media and cellphones, confidentiality is a principle that is easy to violate without the CPA ever being aware. CPAs need to be diligent on what they are sharing via social media and protect their cellphones so unauthorized users do not gain access to confidential information. The final fundamental principle of professional behavior is perhaps the most important: public trust. This is the bedrock of the CPA profession.

The public believes and trusts that the information CPAs attest to is accurate, and they rely on that information to make substantial financial decisions. The old saying of one bad apple spoils the whole batch holds true in our profession as well: one violation of professional behavior can ruin the work and reputation of the whole office, the whole firm, and sometimes the whole profession. Therefore, it is of the utmost importance that all CPAs, especially those just entering the field, only engage in ethical professional behavior. New CPAs need to understand, abide, and uphold fundamental ethical principles so the profession can continue to serve the public interest and, most importantly, continue to hold the public trust.

 


Troy Cannode, CPA, is an assistant professor of accounting at Lycoming College in Williamsport. He can be reached at cannode@lycoming.edu.

 

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