A6 M7 The AICPA Code of Professional Conduct

The AICPA Code of Professional Conduct

governs any service performed by AICPA members (including audits, special reports, compilations, reviews, forecasts, projections, and attestation engagements) and establishes ethical standards to fulfill responsibilities to the public.

AICPA Code of Professional Conduct Principles

Provide the conceptual framework for the code and include Responsibilities, Public Interest, Integrity, Objectivity and Independence, Due Care, and Scope and Nature of Services.

Objectivity vs. Independence

Objectivity applies to all professional services rendered, whereas independence applies strictly to attest services (e.g., audits, special reports, examinations, agreed-upon procedures, and reviews).

Rules by Type of Member

Specific rules govern members based on their role: Members in Public Practice are subject to all rules; Members in Business are subject to all rules except Independence, Confidential Client Information, Contingent Fees, Advertising, Commissions/Referral Fees, and Form of Organization/Name; Other Members (e.g., retired or unemployed) are subject only to the Acts Discreditable Rule.

Independence Rule

A member in public practice must maintain independence of mind and appearance in the performance of professional services as required by designated standards. It applies to covered members, their spouses, and dependents, but is not required for compilations or non-attest services.

Covered Member Definition

Includes individuals on the attest engagement team, individuals in a position to influence the team, partners providing >10 hours of non-attest services to the client annually, partners in the primary lead partner's office, the firm itself (and its employee benefit plans), and controlled entities.

Independence Impaired by Financial Interests

Impaired by any direct financial interest (regardless of materiality) or material indirect financial interest in a client, loans to/from clients (with specific bank exceptions), token gifts beyond minimal value, or material financial interests held by close relatives.

Independence Impaired by Employment Relationships

Impaired if a former client employee joins the engagement team covering their prior employment period, an immediate family member holds a key position at the client, a firm alumnus takes a key position without sufficient disassociation or a review, or a team member seeks/discusses employment with the client without prompt disclosure and removal.

Independence Impaired by Business Relationships

Impaired if a member acts as a director, officer, employee, promoter, underwriter, voting trustee, legal counsel, or trustee for a client's pension plan, or executes management decisions or operational activities (e.g., bookkeeping authorization, asset custody, systems design, or expert witness services). Honorary or purely non- management roles in non-profits do not impair independence.

Other Reasons Independence May Be Impaired

Impaired if professional fees from a prior year remain overdue by more than one year, or if actual/threatened material litigation exists between the auditor and management/client regarding audit work.

Integrity and Objectivity Rule

Members must maintain objectivity and integrity, avoid conflicts of interest, and not knowingly misrepresent facts or subordinate judgment to others.

General Standards Rule

Requires compliance with four standards across all engagements: Professional Competence, Due Professional Care, Planning and Supervision, and Sufficient Relevant Data.

Compliance With Standards Rule

Members performing auditing, review, compilation, management consulting, tax, or other services must comply with standards promulgated by AICPA-designated bodies (e.g., ASB, PCAOB, FASB, GASB, IASB, SSARS).

Accounting Principles Rule

A member shall not state that financial statements conform with GAAP if there is a material departure, unless unusual circumstances (such as new legislation or new business transaction types) would make strict GAAP compliance misleading.

Confidential Client Information Rule

Members in public practice cannot disclose confidential client information without specific client consent. Exceptions include valid subpoenas/summons, authorized AICPA/state quality reviews, or official ethics/disciplinary investigations.

Contingent Fees Rule

Prohibited for audits, reviews, prospective financial examinations, or preparing original/amended tax returns. Permitted if fixed by courts/public authorities, based on judicial/governmental agency tax proceedings, or for compilations used by third parties if lack of independence is disclosed.

Acts Discreditable Rule

Prohibits actions that harm the profession, such as retaining client records after demand, employment discrimination/harassment, negligence in preparing records, solicitation/disclosure of CPA Exam questions, failure to file personal/firm tax returns, or improper retention of firm files upon termination.

Advertising and Other Forms of Solicitation Rule

Prohibits obtaining clients through false, misleading, or deceptive advertising/solicitation (e.g., creating unjustified expectations, implying improper influence, or intentionally underestimating fees).

Commissions and Referral Fees Rule

Commissions for recommending products/services to a client are prohibited if the firm performs an audit, review, third-party compilation (without disclosing lack of independence), or prospective financial examination for that client. Allowed commissions or referral fees for other services must be fully disclosed to the client.

Form of Organization and Name Rule

Firm names cannot be misleading (e.g., using "CPAs" or "Members AICPA" unless all CPA owners meet the criteria). Majority ownership (financial and voting) must belong to CPAs actively engaged in the firm. Sole practitioners may practice under a former partnership name for up to two years after partners leave/die.

Conceptual Framework Background

Used when no specific rule or interpretation addresses a relationship or circumstance; helps evaluate threats to compliance. Includes frameworks for Members in Public Practice, Independence, and Members in Business.

Threats to Compliance

Categories include Adverse Interest, Advocacy, Familiarity, Management Participation (public practice/independence only), Self-Interest, Self-Review, and Undue Influence.

Evaluate the Significance of the Threat

Determine if an identified threat is at an acceptable level where a reasonable, informed third party would conclude compliance is not compromised.

Safeguards That May Eliminate or Reduce Threats

Controls applied to reduce threats to an acceptable level. Includes safeguards created by the profession/legislation/regulation, implemented by the client or employing organization, or implemented by the firm. Firm safeguards cannot rely solely on client-implemented controls to eliminate significant threats.

Consider

Used when the member is required to think about several matters.

Evaluate

Used when the member has to assess and weigh the significance of a matter.

Determine

Used when the member has to come to a conclusion and make a decision on a matter.

Responsibilities

In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities.

Public Interest

Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism.

Integrity

To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity.

Objectivity and Independence

A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities; a member in public practice should be independent in fact and appearance when providing auditing and other attestation services.

Due Care

A member should observe the profession's technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member's ability.

Scope and Nature of Services

A member in public practice should observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided, requiring adequate quality control, evaluation of conflicts of interest, and assessment of professionalism.

Professional Competence

Undertake only those professional services that the member or the member's firm can reasonably be expected to complete with professional competence.

Due Professional Care

Exercise due professional care in the performance of professional services, possessing standard skill, acting as a reasonably prudent accountant, and critically reviewing assistance at every supervision level.

Planning and Supervision

Adequately plan and supervise the performance of professional services.

Sufficient Relevant Data

Obtain sufficient relevant data to afford a reasonable basis for conclusions or recommendations in relation to any professional services performed.

CPA Ownership

A majority of the firm's ownership, in both financial interests and voting rights, must belong to CPAs, with a CPA holding ultimate responsibility for all services provided.

Non CPA Owners

May use titles like principal, owner, officer, member, or shareholder (but not CPA) as permitted by state law, must be actively engaged as firm members providing client services, and must own their equity in their own right.

Conceptual Framework for Members in Public Practice

Applies to members rendering attest, tax, and management advisory services to identify, evaluate, and address threats to compliance with ethical rules.

Conceptual Framework for Independence

Applies specifically to members in public practice when faced with threats to independence during attestation engagements.

Conceptual Framework for Members in Business

Applies to members employed or engaged in executive, staff, governance, advisory, or administrative capacities (e.g., controllers) to address threats to compliance.

Adverse Interest Threat

The threat that a member will not act with objectivity because the member's interests are opposed to the client's, employing organization's, or attest client's interests.

Advocacy Threat

The threat that a member will promote a client's or employing organization's interests or position to the point that objectivity or independence is compromised.

Familiarity Threat

The threat that, because of a long or close relationship with a client, employing organization, or person, a member will become too sympathetic to their interests or too accepting of their work.

Management Participation Threat

The threat that a member will take on the role of attest client management or otherwise assume management responsibilities.

Self Interest Threat

The threat that a member could benefit, financially or otherwise, from an interest in or relationship with a client, employing organization, or persons associated with them.

Self Review Threat

The threat that a member will not appropriately evaluate the results of a previous judgment made or service performed/supervised by the member or their firm/organization, and will rely on that service in forming a judgment for another service.

Undue Influence Threat

The threat that a member will subordinate their judgment to an individual associated with a client, employing organization, or third party due to reputation, aggressive personality, coercion, or excessive influence.