Accounting Question

Discussion: Professional PracticePART ONE: discuss and evaluate professional ethics, you need to understand the purpose
and terminology of ethical standards, as well as the repercussions of professional misconduct.
The American Institute of Certified Public Accountants (AICPA) code of professional
conduct is the gold standard for defining professional conduct in accounting; therefore,
business professionals should be familiar with it. In this discussion, you will explore one
AICPA principle in depth, then discuss it and others with your peers.
First, select one of the following principles of professional conduct to examine in the AICPA
code of professional conduct:
•
•
•
•
•
•
Responsibilities
Public interest
Integrity
Objectivity and independence
Due care
Scope and nature of services
For your initial post, describe what appropriate practice of your selected principle would look
like in the field. Also give some examples of violations of the principle. Use the following
questions to help guide your description:
•
•
•
How would you define and describe your selected principle in your own words?
What value does the principle bring to practitioners, businesses, and clients?
What is an example of a difficult situation that a practitioner may face related to your
selected principle, and what would an ethical response to the situation be? Why might
a practitioner be tempted to or accidentally not take an ethical course of action?
PART TWO: Respond to two peers, discuss actions and consequences that should be taken in
response to a violation of their selected principle. Use the following questions to help guide
your responses:
•
•
What actions or strategies could you or others take to remediate the ethical issues?
What are some repercussions of not abiding by your peer’s selected principle from a
legal, business, or general professional perspective?
AICPA Code of
Professional Conduct
Effective December 15, 2014.
Updated for all Official Releases through August 31, 2016
Copyright © 2016, American Institute of Certified Public Accountants, Inc. All Rights Reserved.
Table of Contents
Preface: Applicable to All Members ………………………………………………………………………….. 1
0.100 Overview of the Code of Professional Conduct ……………………………………………….. 1
.01 ……………………………………………………………………………………………………. 1
.02 ……………………………………………………………………………………………………. 1
.03 ……………………………………………………………………………………………………. 1
0.100.010 Principles and Rules of Conduct ……………………………………………………. 1
0.100.020 Interpretations and Other Guidance …………………………………………………. 1
0.200 Structure and Application of the AICPA Code ………………………………………………… 2
0.200.010 Structure of the AICPA Code ……………………………………………………….. 2
0.200.020 Application of the AICPA Code …………………………………………………….. 2
0.200.030 Citations ………………………………………………………………………………… 3
0.200.040 Transition Provisions …………………………………………………………………. 4
0.200.050 Drafting Conventions …………………………………………………………………. 4
0.300 Principles of Professional Conduct ……………………………………………………………… 4
0.300.010 Preamble ……………………………………………………………………………….. 5
0.300.020 Responsibilities ………………………………………………………………………… 5
0.300.030 The Public Interest ……………………………………………………………………. 5
0.300.040 Integrity …………………………………………………………………………………. 5
0.300.050 Objectivity and Independence ……………………………………………………….. 6
0.300.060 Due Care ……………………………………………………………………………….. 6
0.300.070 Scope and Nature of Services ……………………………………………………….. 7
0.400 Definitions ………………………………………………………………………………………….. 7
.01 ……………………………………………………………………………………………………. 8
.02 ……………………………………………………………………………………………………. 8
.03 ……………………………………………………………………………………………………. 9
.04 ……………………………………………………………………………………………………. 9
.05 ……………………………………………………………………………………………………. 9
.06 ……………………………………………………………………………………………………. 9
.07 ……………………………………………………………………………………………………. 9
.08 …………………………………………………………………………………………………… 10
.09 …………………………………………………………………………………………………… 10
.10 …………………………………………………………………………………………………… 10
.11 …………………………………………………………………………………………………… 10
.12 …………………………………………………………………………………………………… 10
.13 …………………………………………………………………………………………………… 11
.14 …………………………………………………………………………………………………… 11
.15 …………………………………………………………………………………………………… 11
.16 …………………………………………………………………………………………………… 11
.17 …………………………………………………………………………………………………… 11
.18 …………………………………………………………………………………………………… 11
.19 …………………………………………………………………………………………………… 12
.20 …………………………………………………………………………………………………… 12
.21 …………………………………………………………………………………………………… 12
.22 …………………………………………………………………………………………………… 12
.23 …………………………………………………………………………………………………… 12
.24 …………………………………………………………………………………………………… 12
.25 …………………………………………………………………………………………………… 12
.26 …………………………………………………………………………………………………… 12
.27 …………………………………………………………………………………………………… 13
.28 …………………………………………………………………………………………………… 13
.29 …………………………………………………………………………………………………… 13
ii
AICPA Code of Professional Conduct
.30 …………………………………………………………………………………………………… 13
.31 …………………………………………………………………………………………………… 13
.32 …………………………………………………………………………………………………… 13
.33 …………………………………………………………………………………………………… 13
.34 …………………………………………………………………………………………………… 14
.35 …………………………………………………………………………………………………… 14
.36 …………………………………………………………………………………………………… 14
.37 …………………………………………………………………………………………………… 14
.38 …………………………………………………………………………………………………… 14
.39 …………………………………………………………………………………………………… 15
.40 …………………………………………………………………………………………………… 15
.41 …………………………………………………………………………………………………… 15
.42 …………………………………………………………………………………………………… 16
.43 …………………………………………………………………………………………………… 16
.44 …………………………………………………………………………………………………… 16
.45 …………………………………………………………………………………………………… 16
.46 …………………………………………………………………………………………………… 16
.47 …………………………………………………………………………………………………… 16
.48 …………………………………………………………………………………………………… 16
.49 …………………………………………………………………………………………………… 16
0.500 Nonauthoritative Guidance ……………………………………………………………………… 17
.01 …………………………………………………………………………………………………… 17
.02 …………………………………………………………………………………………………… 17
.03 …………………………………………………………………………………………………… 17
0.600 New, Revised, and Pending Interpretations and Other Guidance ………………………….. 17
0.600.010 New and Revised Interpretations and Other Guidance ………………………….. 17
0.600.020 Pending Interpretations and Other Guidance …………………………………….. 19
0.700 Deleted Interpretations and Other Guidance ………………………………………………….. 19
.01 …………………………………………………………………………………………………… 19
Part 1 …………………………………………………………………………………………………………….. 23
1.000 Introduction ……………………………………………………………………………………….. 23
.01 …………………………………………………………………………………………………… 23
.02 …………………………………………………………………………………………………… 23
.03 …………………………………………………………………………………………………… 23
1.000.010 Conceptual Framework for Members in Public Practice ………………………… 23
1.000.020 Ethical Conflicts ……………………………………………………………………… 29
1.100 Integrity and Objectivity ………………………………………………………………………… 29
1.100.001 Integrity and Objectivity Rule ……………………………………………………… 29
Interpretations Under the Integrity and Objectivity Rule ……………………………………. 30
1.200 Independence ……………………………………………………………………………………… 38
1.200.001 Independence Rule …………………………………………………………………… 38
Interpretations Under the Independence Rule ………………………………………………… 38
1.300 General Standards ………………………………………………………………………………. 104
1.300.001 General Standards Rule ……………………………………………………………. 105
Interpretations Under the General Standards Rule ………………………………………….. 105
1.310 Compliance With Standards …………………………………………………………………… 107
1.310.001 Compliance With Standards Rule ………………………………………………… 107
Interpretations Under the Compliance with Standards Rule ………………………………. 107
1.320 Accounting Principles ………………………………………………………………………….. 107
1.320.001 Accounting Principles Rule ……………………………………………………….. 107
Interpretations Under the Accounting Standards Rule ……………………………………… 108
1.400 Acts Discreditable ………………………………………………………………………………. 110
1.400.001 Acts Discreditable Rule ……………………………………………………………. 110
Interpretations Under the Acts Discreditable Rule …………………………………………. 110
iii
AICPA Code of Professional Conduct
1.500 Fees and Other Types of Remuneration …………………………………………………….. 117
1.500.008 Unpaid Fees …………………………………………………………………………. 117
1.510 Contingent Fees ………………………………………………………………………….. 117
1.520 Commissions and Referral Fees ……………………………………………………….. 120
1.600 Advertising and Other Forms of Solicitation ……………………………………………….. 123
1.600.001 Advertising and Other Forms of Solicitation Rule …………………………….. 123
Interpretations Under the Advertising and Other Forms of Solicitation Rule ……………. 123
1.700 Confidential Information ………………………………………………………………………. 124
1.700.001 Confidential Client Information Rule ……………………………………………. 124
Interpretations Under the Confidential Client Information Rule ………………………….. 125
1.800 Form of Organization and Name …………………………………………………………….. 129
1.800.001 Form of Organization and Name Rule …………………………………………… 129
Interpretations Under the Form of Organization and Name Rule …………………………. 129
Part 2 ……………………………………………………………………………………………………………. 133
2.000 Introduction ……………………………………………………………………………………… 133
.01 …………………………………………………………………………………………………. 133
.02 …………………………………………………………………………………………………. 133
2.000.010 Conceptual Framework for Members in Business ……………………………… 133
2.000.020 Ethical Conflicts ……………………………………………………………………. 137
2.100 Integrity and Objectivity ………………………………………………………………………. 138
2.100.001 Integrity and Objectivity Rule ……………………………………………………. 138
Interpretations Under the Integrity and Objectivity Rule ………………………………….. 138
2.300 General Standards ………………………………………………………………………………. 144
2.300.001 General Standards Rule ……………………………………………………………. 144
Interpretations Under the General Standards Rule ………………………………………….. 144
2.310 Compliance With Standards …………………………………………………………………… 145
2.310.001 Compliance With Standards Rule ………………………………………………… 145
Interpretations Under the Compliance with Standards Rule ………………………………. 145
2.320 Accounting Principles ………………………………………………………………………….. 145
2.320.001 Accounting Principles Rule ……………………………………………………….. 146
Interpretations Under the Accounting Principles Rule ……………………………………… 146
2.400 Acts Discreditable ………………………………………………………………………………. 148
2.400.001 Acts Discreditable Rule ……………………………………………………………. 148
Interpretations Under the Acts Discreditable Rule …………………………………………. 148
Part 3 ……………………………………………………………………………………………………………. 152
3.000 Introduction ……………………………………………………………………………………… 152
.01 …………………………………………………………………………………………………. 152
.02 …………………………………………………………………………………………………. 152
3.000.030 Applicability ………………………………………………………………………… 152
3.400 Acts Discreditable ………………………………………………………………………………. 152
3.400.001 Acts Discreditable Rule ……………………………………………………………. 152
Interpretations Under the Acts Discreditable Rule …………………………………………. 152
Appendix A ……………………………………………………………………………………………………. 155
……………………………………………………………………………………………………………. 155
Appendix B …………………………………………………………………………………………………….. 159
……………………………………………………………………………………………………………. 159
Appendix C …………………………………………………………………………………………………….. 161
……………………………………………………………………………………………………………. 161
Appendix D ……………………………………………………………………………………………………. 164
……………………………………………………………………………………………………………. 164
iv
Preface: Applicable to All Members
0.100 Overview of the Code of Professional Conduct
.01
The AICPA Code of Professional Conduct (the code) begins with this preface, which applies to all members
The term member, when used in part 1 of the code, applies to and means a member in public practice;
when used in part 2 of the code, applies to and means a member in business; and when used in part 3 of
the code, applies to and means all other members, such as those members who are retired or unemployed.
.02
A member may have multiple roles, such as a member in business and a member in public practice. In such
circumstances, the member should consult all applicable parts of the code and apply the most restrictive
provisions. [No prior reference: new content]
Effective Date
.03
Effective December 15, 2014.
0.100.010 Principles and Rules of Conduct
.01
The AICPA membership adopted the Code of Professional Conduct (the code) to provide guidance
and rules to all members in the performance of their professional responsibilities. The code consists of
principles and rules as well as interpretations and other guidance which are discussed in 0.100.020.
The principles provide the framework for the rules that govern the performance of their professional
responsibilities.
.02
The AICPA bylaws require that members adhere to the rules of the code. Compliance with the rules
depends primarily on members’ understanding and voluntary actions; secondarily on reinforcement by
peers and public opinion; and ultimately on disciplinary proceedings, when necessary, against members
who fail to comply with the rules. Members must be prepared to justify departures from these rules.
0.100.020 Interpretations and Other Guidance
.01
Interpretations of the rules of conduct are adopted after exposure to the membership, state societies, state
boards, and other interested parties. The interpretations of the rules of conduct, “Definitions” [0.400],
“Application of the AICPA Code” [0.200.020], and “Citations” [0.200.030], provide guidelines about the
scope and application of the rules but are not intended to limit such scope or application. A member who
departs from the interpretations shall have the burden of justifying such departure in any disciplinary
hearing. Interpretations that existed before the adoption of the code on January 12, 1988, will remain in
effect until further action is deemed necessary by the appropriate senior committee.
.02
A member should also consult the following, if applicable:
•
The ethical requirements of the member’s state CPA society and authoritative regulatory bodies such
as state board(s) of accountancy
•
The Securities and Exchange Commission (SEC)
•
The Public Company Accounting Oversight Board (PCAOB)
•
The Government Accountability Office (GAO)
•
The Department of Labor (DOL)
•
Federal, state and local taxing authorities
1
Preface: Applicable to All Members
•
Any other body that regulates a member who performs professional services for an entity when the
member or entity is subject to the rules and regulations of such regulatory body. [Prior reference:
Introduction]
0.200 Structure and Application of the AICPA Code
0.200.010 Structure of the AICPA Code
.01
A variety of topics appear in parts 1–3 of the code. When applicable, topics are aligned with the relevant
rule or rules of conduct. Topics may be further divided into subtopics, and some subtopics include one
or more sections. Topics, subtopics, and sections interpret the rules of conduct (see “Interpretations and
Other Guidance” [0.100.020]).
.02
Defined terms (see “Definitions” [0.400]) as well as the plurals and possessives thereof, are shown in italics
throughout the code. When a defined term is used in the code but is not shown in italics, the definition in
0.400 should not be applied. [No prior reference: new content]
Effective Date
.03
Effective December 15, 2014.
0.200.020 Application of the AICPA Code
.01
The Code of Professional Conduct (the code) was originally adopted on January 12, 1988, and
was periodically revised through June 1, 2014. On June 1, 2014, the AICPA issued a codification
of the code’s principles, rules, interpretations and rulings (revised code). The revised code will be
effective December 15, 2014, excluding the Conceptual Framework sections. These sections, “Conceptual
Framework for Members in Public Practice” [1.000.010] and “Conceptual Framework for Members in
Business” [2.000.010], will be effective December 15, 2015. Members are permitted to implement the
revised code prior to December 15, 2014, but a member may not implement the relevant Conceptual
Framework prior to implementing the entire revised code. Revisions made subsequent to June 1, 2014, are
identified in appendix C, the Revision History Table, which notes the month and year of the change, the
effective date of the change, the purpose for the revision, and when possible, a link to the marked revision
of the content that appeared in the Journal of Accountancy. If the interpretation or paragraph does not
contain a specific effective date or a reference to the revision history table, then the content was effective
prior to June 1, 2014. [No prior reference: new content.]
.02
When used in the preface of the code, the term member includes members, associate members, and affiliate
members, as well as international associates of the AICPA.
.03
The rules of conduct apply to all professional services performed, except
a. when the wording of the rule indicates otherwise.
b. that a member who is practicing outside the United States will not be considered in violation
of a particular rule for departing from any of the rules stated herein, as long as the member’s
conduct is in accordance with the rules of the organized accounting profession in the country in
which he or she is practicing. However, when a member is associated with financial statements
under circumstances that would lead the reader to assume that practices of the United States were
followed, the member must comply with the “Compliance With Standards Rule” [1.310.001 for
members in public practice and 2.310.001 for members in business] and the “Accounting Principles
Rule” [1.320.001 for members in public practice and 2.320.001 for members in business].
c. that a member who is a member of a group engagement team (see the clarified Statement on Auditing
Standards Special Considerations—Audits of Group Financial Statements [Including the Work of
Component Auditors] [AICPA, Professional Standards, AU-C sec. 600]) will not be considered in
2
Preface: Applicable to All Members
violation of a particular rule if a foreign component auditor (accountant) departed from any of the
rules stated herein with respect to the audit or review of group financial statements or other attest
engagement, as long as the foreign component auditor’s (accountant’s) conduct, at a minimum, is
in accordance with the ethics and independence requirements set forth in the International Ethics
Standards Board for Accountants’ (IESBA’s) Code of Ethics for Professional Accountants, and the
members of the group engagement team are in compliance with the rules stated therein.
d. that the independence of the member’s firm will not be considered impaired if another firm or entity
located outside the United States that is within the member firm’s network departed from any of the
rules stated herein, as long as the other firm or entity’s conduct, at a minimum, is in accordance with
the independence requirements set forth in the IESBA’s Code of Ethics for Professional Accountants.
.04
A member shall not knowingly permit a person whom the member has the authority or capacity to control
to carry out on his or her behalf, either with or without compensation, acts that, if carried out by the
member, would place the member in violation of the rules. Further, a member may be held responsible for
the acts of all persons associated with the member in public practice whom the member has the authority
or capacity to control.
.05
The independence of a member in public practice or a covered member may be impaired with respect to a
client as the result of the actions or relationships, as described in the “Independence Rule” [1.200.001] and
its interpretations, of certain persons or entities whom the member or covered member does not have the
authority or capacity to control. Even if the member is unable to control the actions or relationships of such
persons or entities, the member’s independence may still be impaired. [Prior reference: ET section 91]
.06
The “Breach of an Independence Interpretation” [1.298.010] of the “Independence Rule” [1.200.001]
contains guidance with which a member should comply if the member identifies a breach of an
independence interpretation of the code. If a member identifies a breach of any other provision of
this code, the member should evaluate the significance of the breach and its effect on the member’s
ability to comply with the rules of the code. The member should take whatever actions may be available,
as soon as practicable, to satisfactorily address the consequences of the breach. The member should
determine whether to report the breach, for example, to those who may have been affected by the breach, a
professional body, relevant regulator, or oversight authority. In making the evaluation and in determining
what actions should be taken, the member should exercise professional judgment and take into account
whether a reasonable and informed third party, weighing the significance of the breach, the action to be
taken, and all the specific facts and circumstances available to the member at that time, would be likely
to conclude that the member is able to comply with the rules of the code. A member’s determination that
the member has satisfactorily addressed the consequences of the breach will not, however, preclude an
investigation or enforcement action concerning the underlying breach of the code and the member should
be prepared to justify such determination.
Effective Date
.07
Paragraph .01 is effective December 15, 2014. Paragraph .06 is effective March 31, 2016, with early
implementation allowed.
[See Revision History Table.]
0.200.030 Citations
Prior ET Sections
.01
The code has been revised by codifying the principles, rules, interpretations, and rulings. These revisions
are effective December 15, 2014. To facilitate implementation of the revised code, the prior ET references
from the professional standards of the AICPA will be included for a four-year period (until December 15,
2018) in appendix D, “Mapping Document,” and in bracketed text at the end of standards, where applicable.
Numeric Citations
3
Preface: Applicable to All Members
.02
The numbering system for the code is “ET section X.XXX.XXX.” The single digit that begins the citation
identifies the part wherein the content resides. Accordingly, content from the preface begins with the single
digit 0.XXX.XXX, whereas content for part 1 begins with a 1.XXX.XXX, part 2 with 2.XXX.XXX, and
part 3 with a 3.XXX.XXX.
.03
Next are two sets of three digit numbers that identify the topics and, when applicable, subtopics or sections.
When a topic, subtopic or section appears in two or more parts of the code, the same number is used.
For example, the “Acts Discreditable Rule” appears in parts 1, 2, and 3 and the citations for this rule are
1.400.001, 2.400.001, and 3.400.001, respectively. Accordingly, the two sets of three digit numbers remain
the same with only the first digit changing.
.04
When only two digits appear, those digits represent the paragraph number. For example, the complete
citation for this paragraph would be 0.200.030.04.
.05
All bracketed section references, such as [0.200.030.04] refer to sections within the Code of Professional
Conduct. [No prior reference: new content]
Effective Date
.06
Effective December 15, 2014.
0.200.040 Transition Provisions
.01
The text of the transition provisions in effect as of May 31, 2013, has not been codified because
the transition provisions apply to a limited number of situations. Nevertheless, these transition
provisions are still authoritative. The texts of these transition provisions are available at http://aicpa.org/
InterestAreas/ProfessionalEthics/Community/DownloadableDocuments/Transistion%20Periods.pdf. [No
prior reference: new content]
Effective Date
.02
Effective December 15, 2014.
0.200.050 Drafting Conventions
.01
The code utilizes certain drafting conventions to enhance the clarity of the interpretations and definitions.
For example, when the term “should consider” is used in connection with a specified procedure or action,
consideration of the procedure or action by the member is presumptively required. Actual performance of
the action or procedure is up to the member, based upon the outcome of the member’s consideration and
the member’s professional judgment. Other drafting conventions used in the code include use of the terms
“consider,” “evaluate,” and “determine,” as follows:
a. “Consider” is used when the member is required to think about several matters.
b. “Evaluate” is used when the member has to assess and weigh the significance of a matter.
c. “Determine” is used when the member has to come to a conclusion and make a decision on a matter.
[No prior reference: new content]
Effective Date
.02
Effective December 15, 2014.
A complete nonauthoritative guide, Drafting Guide—Drafting Guidelines for Integrating the Conceptual Framework
and Drafting Conventions and Style Guidance, is also available at http://aicpa.org/InterestAreas/ProfessionalEthics/
Community/DownloadableDocuments/Drafting%20Guide.pdf.
0.300 Principles of Professional Conduct
4
Preface: Applicable to All Members
0.300.010 Preamble
.01
Membership in the American Institute of Certified Public Accountants is voluntary. By accepting
membership, a member assumes an obligation of self-discipline above and beyond the requirements of
laws and regulations.
.02
These Principles of the Code of Professional Conduct of the American Institute of Certified Public
Accountants express the profession’s recognition of its responsibilities to the public, to clients, and to
colleagues. They guide members in the performance of their professional responsibilities and express the
basic tenets of ethical and professional conduct. The Principles call for an unswerving commitment to
honorable behavior, even at the sacrifice of personal advantage. [Prior reference: ET section 51]
0.300.020 Responsibilities
.01
Responsibilities principle. In carrying out their responsibilities as professionals, members should exercise
sensitive professional and moral judgments in all their activities.
.02
As professionals, members perform an essential role in society. Consistent with that role, members of
the American Institute of Certified Public Accountants have responsibilities to all those who use their
professional services. Members also have a continuing responsibility to cooperate with each other to
improve the art of accounting, maintain the public’s confidence, and carry out the profession’s special
responsibilities for self-governance. The collective efforts of all members are required to maintain and
enhance the traditions of the profession. [Prior reference: ET section 52]
0.300.030 The Public Interest
.01
The public interest principle. Members should accept the obligation to act in a way that will serve the
public interest, honor the public trust, and demonstrate a commitment to professionalism.
.02
A distinguishing mark of a profession is acceptance of its responsibility to the public. The accounting
profession’s public consists of clients, credit grantors, governments, employers, investors, the business
and financial community, and others who rely on the objectivity and integrity of members to maintain the
orderly functioning of commerce. This reliance imposes a public interest responsibility on members. The
public interest is defined as the collective well-being of the community of people and institutions that the
profession serves.
.03
In discharging their professional responsibilities, members may encounter conflicting pressures from each
of those groups. In resolving those conflicts, members should act with integrity, guided by the precept that
when members fulfill their responsibility to the public, clients’ and employers’ interests are best served.
.04
Those who rely on members expect them to discharge their responsibilities with integrity, objectivity,
due professional care, and a genuine interest in serving the public. They are expected to provide quality
services, enter into fee arrangements, and offer a range of services—all in a manner that demonstrates a
level of professionalism consistent with these Principles of the Code of Professional Conduct.
.05
All who accept membership in the American Institute of Certified Public Accountants commit themselves
to honor the public trust. In return for the faith that the public reposes in them, members should seek to
continually demonstrate their dedication to professional excellence. [Prior reference: ET section 53]
0.300.040 Integrity
.01
Integrity principle. To maintain and broaden public confidence, members should perform all professional
responsibilities with the highest sense of integrity.
.02
Integrity is an element of character fundamental to professional recognition. It is the quality from which
the public trust derives and the benchmark against which a member must ultimately test all decisions.
5
Preface: Applicable to All Members
.03
Integrity requires a member to be, among other things, honest and candid within the constraints of client
confidentiality. Service and the public trust should not be subordinated to personal gain and advantage.
Integrity can accommodate the inadvertent error and honest difference of opinion; it cannot accommodate
deceit or subordination of principle.
.04
Integrity is measured in terms of what is right and just. In the absence of specific rules, standards, or
guidance or in the face of conflicting opinions, a member should test decisions and deeds by asking: “Am
I doing what a person of integrity would do? Have I retained my integrity?” Integrity requires a member to
observe both the form and the spirit of technical and ethical standards; circumvention of those standards
constitutes subordination of judgment.
.05
Integrity also requires a member to observe the principles of objectivity and independence and of due care.
[Prior reference: ET section 54]
0.300.050 Objectivity and Independence
.01
Objectivity and independence principle. 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.
.02
Objectivity is a state of mind, a quality that lends value to a member’s services. It is a distinguishing
feature of the profession. The principle of objectivity imposes the obligation to be impartial, intellectually
honest, and free of conflicts of interest. Independence precludes relationships that may appear to impair
a member’s objectivity in rendering attestation services.
.03
Members often serve multiple interests in many different capacities and must demonstrate their objectivity
in varying circumstances. Members in public practice render attest, tax, and management advisory services.
Other members prepare financial statements in the employment of others, perform internal auditing
services, and serve in financial and management capacities in industry, education, and government. They
also educate and train those who aspire to admission into the profession. Regardless of service or capacity,
members should protect the integrity of their work, maintain objectivity, and avoid any subordination of
their judgment.
.04
For a member in public practice, the maintenance of objectivity and independence requires a continuing
assessment of client relationships and public responsibility. Such a member who provides auditing and
other attestation services should be independent in fact and appearance. In providing all other services, a
member should maintain objectivity and avoid conflicts of interest.
.05
Although members not in public practice cannot maintain the appearance of independence, they
nevertheless have the responsibility to maintain objectivity in rendering professional services. Members
employed by others to prepare financial statements or to perform auditing, tax, or consulting services are
charged with the same responsibility for objectivity as members in public practice and must be scrupulous
in their application of generally accepted accounting principles and candid in all their dealings with
members in public practice. [Prior reference: ET section 55]
0.300.060 Due Care
.01
Due care principle. 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.
.02
The quest for excellence is the essence of due care. Due care requires a member to discharge professional
responsibilities with competence and diligence. It imposes the obligation to perform professional services
to the best of a member’s ability, with concern for the best interest of those for whom the services are
performed, and consistent with the profession’s responsibility to the public.
6
Preface: Applicable to All Members
.03
Competence is derived from a synthesis of education and experience. It begins with a mastery of the
common body of knowledge required for designation as a certified public accountant. The maintenance
of competence requires a commitment to learning and professional improvement that must continue
throughout a member’s professional life. It is a member’s individual responsibility. In all engagements and
in all responsibilities, each member should undertake to achieve a level of competence that will assure that
the quality of the member’s services meets the high level of professionalism required by these Principles.
.04
Competence represents the attainment and maintenance of a level of understanding and knowledge that
enables a member to render services with facility and acumen. It also establishes the limitations of a
member’s capabilities by dictating that consultation or referral may be required when a professional
engagement exceeds the personal competence of a member or a member’s firm. Each member is responsible
for assessing his or her own competence of evaluating whether education, experience, and judgment are
adequate for the responsibility to be assumed.
.05
Members should be diligent in discharging responsibilities to clients, employers, and the public. Diligence
imposes the responsibility to render services promptly and carefully, to be thorough, and to observe
applicable technical and ethical standards.
.06
Due care requires a member to plan and supervise adequately any professional activity for which he or she
is responsible. [Prior reference: ET section 56]
0.300.070 Scope and Nature of Services
.01
Scope and nature of services principle. 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.
.02
The public interest aspect of members’ services requires that such services be consistent with acceptable
professional behavior for members. Integrity requires that service and the public trust not be subordinated
to personal gain and advantage. Objectivity and independence require that members be free from conflicts
of interest in discharging professional responsibilities. Due care requires that services be provided with
competence and diligence.
.03
Each of these Principles should be considered by members in determining whether or not to provide specific
services in individual circumstances. In some instances, they may represent an overall constraint on the
nonaudit services that might be offered to a specific client. No hard-and-fast rules can be developed to
help members reach these judgments, but they must be satisfied that they are meeting the spirit of the
Principles in this regard.
.04
In order to accomplish this, members should
a. Practice in firms that have in place internal quality control procedures to ensure that services are
competently delivered and adequately supervised.
b. Determine, in their individual judgments, whether the scope and nature of other services provided
to an audit client would create a conflict of interest in the performance of the audit function for that
client.
c. Assess, in their individual judgments, whether an activity is consistent with their role as
professionals. [Prior reference: ET section 57]
0.400 Definitions
Pursuant to its authority under the bylaws (paragraph .01 [3.6.2.2] of BL section 360, Committees [AICPA,
Professional Standards]) to interpret the code, the Professional Ethics Executive Committee has issued the following
definitions of terms appearing in the code.
7
Preface: Applicable to All Members
.01
Acceptable level. In connection with independence, an acceptable level is a level at which a reasonable
and informed third party who is aware of the relevant information would be expected to conclude that a
member’s independence is not impaired. When used in connection with any rule but the “Independence
Rule” [1.200.001] an acceptable level is a level at which a reasonable and informed third party who is
aware of the relevant information would be expected to conclude that a member’s compliance with the
rules is not compromised. [Prior reference: ET section 100-1 and new content]
Effective Date
When this definition is used in connection with any rule but the “Independence Rule” [1.200.001] it is
effective December 15, 2014.
.02
Affiliate. The following entities are affiliates of a financial statement attest client:
a. An entity (for example, subsidiary, partnership, or limited liability company [LLC]) that a financial
statement attest client can control.
b. An entity in which a financial statement attest client or an entity controlled by the financial statement
attest client has a direct financial interest that gives the financial statement attest client significant
influence over such entity and that is material to the financial statement attest client.
c. An entity (for example, parent, partnership, or LLC) that controls a financial statement attest client
when the financial statement attest client is material to such entity.
d. An entity with a direct financial interest in the financial statement attest client when that entity
has significant influence over the financial statement attest client, and the interest in the financial
statement attest client is material to such entity.
e. A sister entity of a financial statement attest client if the financial statement attest client and sister
entity are each material to the entity that controls both.
f. A trustee that is deemed to control a trust financial statement attest client that is not an investment
company.
g. The sponsor of a single employer employee benefit plan financial statement attest client.
h. Any entity, such as a union, participating employer, or a group association of employers, that has
significant influence over a multiemployer employee benefit plan financial statement attest client
and the plan is material to such entity.
i. The participating employer that is the plan administrator of a multiple employer employee benefit
plan financial statement attest client.
j. A single or multiple employer employee benefit plan sponsored by either a financial statement attest
client or an entity controlled by the financial statement attest client. All participating employers of
a multiple employer employee benefit plan are considered sponsors of the plan.
k. A multiemployer employee benefit plan when a financial statement attest client or entity controlled
by the financial statement attest client has significant influence over the plan and the plan is material
to the financial statement attest client.
l. An investment adviser, a general partner, or a trustee of an investment company financial statement
attest client (fund) if the fund is material to the investment adviser, general partner, or trustee that is
deemed to have either control or significant influence over the fund. When considering materiality,
members should consider investments in, and fees received from, the fund.
8
Preface: Applicable to All Members
Nonauthoritative questions and answers related to the application of the independence rules to affiliates
of employee benefit plans are available at www.aicpa.org/InterestAreas/ProfessionalEthics/Resources/Tools/
DownloadableDocuments/faqs-application-independence-rules-affiliates-of-employee-benefit-plans.pdf.
[Prior reference: paragraph .20 of ET section 101]
[See Revision History Table.]
.03
Attest client. A client that engages a member to perform an attest engagement or with respect to which a
member performs an attest engagement. [No prior reference: new content]
See paragraph .06 of the “Client Affiliate” interpretation [1.224.010] for acquisitions and business
combinations that involve a financial statement attest client.
Effective Date
This definition is effective December 15, 2014.
[See Revision History Table.]
.04
Attest engagement. An engagement that requires independence, as set forth in the AICPA Statements
on Auditing Standards (SASs), Statements on Standards for Accounting and Review Services (SSARSs),
and Statements on Standards for Attestation Engagements (SSAEs). [Prior reference: paragraph .01 of ET
section 92]
.05
Attest engagement team. Those individuals participating in the attest engagement, including those who
perform concurring and engagement quality reviews. The attest engagement team includes all employees
and contractors retained by the firm who participate in the attest engagement, regardless of their functional
classification (for example, audit, tax, or management consulting services). The attest engagement team
excludes specialists, as discussed in AU-C section 620, Using the Work of an Auditor’s Specialist (AICPA,
Professional Standards), and individuals who perform only routine clerical functions, such as word
processing and photocopying. [Prior reference: paragraph .02 of ET section 92]
.06
Beneficially owned. Describes a financial interest of which an individual or entity is not the record owner
but has a right to some or all of the underlying benefits of ownership. These benefits include the authority
to direct the voting or disposition of the interest or to receive the economic benefits of the ownership of
the interest. [Prior reference: paragraph .17 of ET section 101]
.07
Client. Any person or entity, other than the member’s employer, that engages a member or member’s firm
to perform professional services and, if different, the person or entity with respect to which professional
services are performed. For purposes of this definition, the term employer does not include the following:
a. Person or entity engaged in public practice.
b. Federal, state, and local government or component unit thereof, provided that the member performing
professional services with respect to the entity is
i. directly elected by voters of the government or component unit thereof with respect to which
professional services are performed;
ii. an individual who is (1) appointed by a legislative body and (2) subject to removal by a
legislative body; or
iii. appointed by someone other than the legislative body, so long as the appointment is confirmed
by the legislative body and removal is subject to oversight or approval by the legislative body.
[Prior reference: paragraph .03 of ET section 92]
9
Preface: Applicable to All Members
.08
Close relative. A parent, sibling, or nondependent child. [Prior reference: paragraph .04 of ET section 92]
.09
Confidential client information. Any information obtained from the client that is not available to the
public. Information that is available to the public includes, but is not limited to, information
a. in a book, periodical, newspaper, or similar publication;
b. in a client document that has been released by the client to the public or that has otherwise become
a matter of public knowledge;
c. on publicly accessible websites, databases, online discussion forums, or other electronic media by
which members of the public can access the information;
d. released or disclosed by the client or other third parties in media interviews, speeches, testimony
in a public forum, presentations made at seminars or trade association meetings, panel discussions,
earnings press release calls, investor calls, analyst sessions, investor conference presentations, or a
similar public forum;
e. maintained by, or filed with, regulatory or governmental bodies that is available to the public; or
f. obtained from other public sources.
Unless the particular client information is available to the public, such information should be considered
confidential client information. Members are advised that federal, state, or local statutes, rules, or
regulations concerning confidentiality of client information may be more restrictive than the requirements
in the code. [Prior reference: paragraph .05 of ET section 92]
.10
Control (s) (led). As used in FASB Accounting Standards Codification (ASC) 810, Consolidation.
When used in the “Client Affiliates” interpretation [1.224.010] of the “Independence Rule” [1.200.001],
control depends upon the entity in question. For example, when used for not-for-profit entities, control
is as used in FASB ASC 958-805-20; for commercial entities, control is as used in FASB ASC
810. [Prior reference: numerous ET sections; also see “Breakdown of the Term Control in the Code”
at AICPA.org www.aicpa.org/InterestAreas/ProfessionalEthics/Community/DownloadableDocuments/
breakdown-of-the-term-control.pdf]
.11
Council. The AICPA Council. [Prior reference: paragraph .06 of ET section 92]
.12
Covered member. All of the following:
a. an individual on the attest engagement team.
b. an individual in a position to influence the attest engagement.
c. a partner, partner equivalent, or manager who provides more than 10 hours of nonattest services to
the attest client within any fiscal year. Designation as covered member ends on the later of (i) the
date that the firm signs the report on the financial statements for the fiscal year during which those
services were provided or (ii) the date he or she no longer expects to provide 10 or more hours of
nonattest services to the attest client on a recurring basis.
d. a partner or partner equivalent in the office in which the lead attest engagement partner or partner
equivalent primarily practices in connection with the attest engagement.
e. the firm, including the firm’s employee benefit plans.
f. an entity whose operating, financial, or accounting policies can be controlled by any of the individuals
or entities described in items a–e or two or more such individuals or entities if they act together.
[Prior reference: paragraph .07 of ET section 92]
10
Preface: Applicable to All Members
Effective Date
The addition of partner equivalents to this definition is effective for engagements covering periods
beginning on or after December 15, 2014.
.13
Direct financial interest. A financial interest that is
a. owned directly by an individual or entity, including those managed on a discretionary basis by others.
b. under the control of an individual or entity, including those managed on a discretionary basis by
others.
c. beneficially owned through an investment vehicle, estate, trust, or other intermediary when the
beneficiary
i. controls the intermediary or
ii. has the authority to supervise or participate in the intermediary’s investment decisions.
When used in this definition, the term control includes situations in which the covered member has the
ability to exercise such control, either individually or acting together with his or her firm or other partners
or professional employees of his or her firm. [Prior reference: paragraph .17 of ET section 101]
.14
Employing organization. Any entity that employs the member or engages the member on a contractual or
volunteer basis in an executive, a staff, a governance, an advisory, or an administrative capacity to provide
professional services. [No prior reference: new content]
Effective Date
This definition is effective December 15, 2014.
.15
Financial interest. An ownership interest in an equity or a debt security issued by an entity, including
rights and obligations to acquire such an interest and derivatives directly related to such interest. [Prior
reference: paragraph .17 of ET section 101]
.16
Financial statement attest client. An entity whose financial statements are audited, reviewed, or compiled
when the member’s compilation report does not disclose a lack of independence. This term is used in the
“Client Affiliates” interpretation [1.224.010] of the “Independence Rule” [1.200.001] and in the definition
of an affiliate [0.400.02]. [Prior reference: paragraph .20 of ET section 101]
.17
Financial statements. A presentation of financial data, including accompanying disclosures, if any,
intended to communicate an entity’s economic resources or obligations, or both, at a point in time or the
changes therein for a period of time, in accordance with the applicable financial reporting framework.
Incidental financial data to support recommendations to a client or in (a) documents for which the reporting
is governed by SSAEs and (b) tax returns and supporting schedules do not, for this purpose, constitute
financial statements. 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. [Prior reference:
paragraph .10 of ET section 92]
.18
Firm. A form of organization permitted by law or regulation whose characteristics conform to resolutions
of the Council and that is engaged in public practice. A firm includes the individual partners thereof, except
for purposes of applying the “Independence Rule” [1.200.001] and related interpretations. For purposes
of applying the “Independence Rule,” a firm includes a network firm when the engagement is either a
financial statement audit or review engagement and the audit or review report is not restricted, as set forth
in the AICPA SASs and SSARSs (AICPA, Professional Standards). [Prior reference: paragraph .11 of
ET section 92]
11
Preface: Applicable to All Members
.19
Immediate family. A spouse, spousal equivalent, or dependent (regardless of whether the dependent is
related). [Prior reference: paragraph .13 of ET section 92]
.20
Impair(ed)(ing). In connection with independence, to effectively extinguish independence. When a
member’s independence is impaired, the member is not independent. [Prior reference: paragraph .09 of
ET section 100-1]
.21
Independence. Consists of two elements, defined as follows:
a. Independence of mind is the state of mind that permits a member to perform an attest service without
being affected by influences that compromise professional judgment, thereby allowing an individual
to act with integrity and exercise objectivity and professional skepticism.
b. Independence in appearance is the avoidance of circumstances that would cause a reasonable and
informed third party who has knowledge of all relevant information, including the safeguards
applied, to reasonably conclude that the integrity, objectivity, or professional skepticism of a firm
or member of the attest engagement team is compromised.
This definition should not be interpreted as an absolute. For example, the phrase “without being affected by
influences that compromise professional judgment” is not intended to convey that the member must be free
of any and all influences that might compromise objective judgment. Instead, the member should determine
whether such influences, if present, create a threat that is not at an acceptable level that a member would
not act with integrity and exercise objectivity and professional skepticism in the conduct of a particular
engagement or would be perceived as not being able to do so by a reasonable and informed third party
with knowledge of all relevant information. [Prior reference: paragraphs .06–.08 of ET section 100-1]
.22
Indirect financial interest. A financial interest beneficially owned through an investment vehicle, an
estate, a trust, or an other intermediary when the beneficiary neither controls the intermediary nor has
the authority to supervise or participate in the intermediary’s investment decisions. When used in this
definition, control includes situations in which the covered member has the ability to exercise such control,
either individually or acting together with his or her firm or other partners or professional employees of
his or her firm. [Prior reference: paragraph .17 of ET section 101]
.23
Individual in a position to influence the attest engagement. One who
a. evaluates the performance or recommends the compensation of the attest engagement partner;
b. directly supervises or manages the attest engagement partner , including all successively senior
levels above that individual through the firm’s chief executive;
c. consults with the attest engagement team regarding technical or industry-related issues specific to
the attest engagement; or
d. participates in or oversees, at all successively senior levels, quality control activities, including
internal monitoring, with respect to the specific attest engagement.
[Prior reference: paragraph .14 of ET section 92]
.24
Institute. The AICPA. [Prior reference: paragraph .15 of ET section 92]
.25
Interpretation. Pronouncements issued by the division of professional ethics to provide guidelines
concerning the scope and application of the rules of conduct. [Prior reference: paragraph .16 of ET section
92]
.26
Joint closely held investment. An investment in an entity or a property by the member and client (or the
client’s officers or directors or any owner who has the ability to exercise significant influence over the
client) that enables them to control the entity or property. [Prior reference: paragraph .17 of ET section 92]
12
Preface: Applicable to All Members
.27
Key position. A position in which an individual has
a. primary responsibility for significant accounting functions that support material components of the
financial statements;
b. primary responsibility for the preparation of the financial statements; or
c. the ability to exercise influence over the contents of the financial statements, including when the
individual is a member of the board of directors or similar governing body, chief executive officer,
president, chief financial officer, chief operating officer, general counsel, chief accounting officer,
controller, director of internal audit, director of financial reporting, treasurer, or any equivalent
position.
For purposes of attest engagements not involving a client’s financial statements, a key position is one
in which an individual is primarily responsible for, or able to influence, the subject matter of the attest
engagement, as previously described. [Prior reference: paragraph .18 of ET section 92]
.28
Lending institution. An entity that, as part of its normal business operations, makes loans. This definition
is not meant to include an organization that might schedule payment for services for a client over a
period of time. Examples of such entities are banks, credit unions, certain retailers, and insurance and
finance companies. For example, for automobile leases addressed by the “Loans and Leases With Lending
Institutions” interpretation [1.260.020] of the “Independence Rule” [1.200.001], an entity is considered
a lending institution if it leases automobiles as part of its normal business operations. [Prior reference:
paragraph .09 of ET section 92]
Effective Date
This revised definition is effective December 15, 2014.
.29
Loan. A contractual obligation to pay or right to receive money on demand or on a fixed or determinable
date and includes a stated or implied rate of return to the lender. For purposes of this definition, loans
include, among other things, a guarantee of a loan, a letter of credit, a line of credit, or a loan commitment.
However, for purposes of this definition, a loan would not include debt securities (which are considered a
financial interest) or lease arrangements. [Prior reference: paragraph .19 of ET section 92]
Effective Date
This revised definition is effective December 15, 2014.
.30
Manager. A professional employee of the firm who has continuing responsibility for the planning and
supervision of engagements for specified clients. [Prior reference: paragraph .20 of ET section 92]
.31
Member. A member, associate member, affiliate member, or international associate of the AICPA. When
the term member is used in part 1 of the code, it means a member in public practice; when used in part 2 of
the code, it means a member in business; and when used in part 3 of the code, it means all other members.
[Prior reference: paragraph .21 of ET section 92]
.32
Member(s) in business. A member who is employed or engaged on a contractual or volunteer basis in
a(n) executive, staff, governance, advisory, or administrative capacity in such areas as industry, the public
sector, education, the not-for-profit sector, and regulatory or professional bodies. This does not include a
member engaged in public practice. [Prior reference: paragraph .22 of ET section 92]
.33
Network. For purposes of the “Network and Network Firms” interpretation [1.220.010] of the
“Independence Rule” [1.200.001], a network is an association of entities that includes one or more firms
that (a) cooperate for the purpose of enhancing the firms’ capabilities to provide professional services and
(b) share one or more of the following characteristics:
13
Preface: Applicable to All Members
a. The use of a common brand name, including common initials, as part of the firm name
b. Common control among the firms through ownership, management, or other means
c. Profits or costs, excluding costs of operating the association; costs of developing audit
methodologies, manuals, and training courses; and other costs that are immaterial to the firm
d. A common business strategy that involves ongoing collaboration amongst the firms whereby the
firms are responsible for implementing the association’s strategy and are held accountable for
performance pursuant to that strategy
e. A significant part of professional resources
f. Common quality control policies and procedures that firms are required to implement and that are
monitored by the association
A network may comprise a subset of entities within an association only if that subset of entities cooperates
and shares one or more of the characteristics set forth in the preceding list. [Prior reference: paragraph .23
of ET section 92]
.34
Network firm. A firm or other entity that belongs to a network. This includes any entity (including another
firm) that the network firm, by itself or through one or more of its owners, controls, is controlled by, or is
under common control with. [Prior reference: paragraph .24 of ET section 92]
.35
Normal lending procedures, terms, and requirements. In connection with a covered member’s loan
from a lending institution, lending procedures, terms, and requirements that are reasonably comparable
with those relating to loans of a similar character committed to other borrowers during the period in which
the loan to the covered member is committed. Accordingly, in making such comparison and evaluating
whether a loan was made under normal lending procedures, terms, and requirements, the covered member
should consider all the circumstances under which the loan was granted, including the following:
a. The amount of the loan in relation to the value of the collateral pledged as security and the credit
standing of the covered member
b. Repayment terms
c. Interest rate, including points
d. Closing costs
e. General availability of such loans to the public
Related prohibitions that may be more restrictive are prescribed by certain state and federal agencies having
regulatory authority over such lending institutions. Broker-dealers, for example, are subject to regulation
by the SEC. [Prior reference: paragraph .25 of ET section 92]
.36
Office. A reasonably distinct subgroup within a firm, whether constituted by formal organization or
informal practice, in which personnel who make up the subgroup generally serve the same group of clients
or work on the same categories of matters. Substance should govern the office classification. For example,
the expected regular personnel interactions and assigned reporting channels of an individual may well be
more important than an individual’s physical location. [Prior reference: paragraph .26 of ET section 92]
.37
Partner. A proprietor, a shareholder, an equity or a nonequity partner, or any individual who assumes the
risks and benefits of firm ownership or is otherwise held out by the firm to be the equivalent of any of the
aforementioned. [Prior reference: paragraph .27 of ET section 92]
.38
Partner equivalent. A professional employee who is not a partner of the firm but who either
14
Preface: Applicable to All Members
a. has the ultimate responsibility for the conduct of an attest engagement, including the authority to
sign or affix the firm’s name to an attest report or issue, or authorize others to issue, an attest report
on behalf of the firm without partner approval; or
b. has the authority to bind the firm to conduct an attest engagement without partner approval. For
example, the professional employee has the authority to sign or affix the firm’s name to an attest
engagement letter or contract to conduct an attest engagement without partner approval.
Firms may use different titles to refer to professional employees with this authority, although a title is not
determinative of a partner equivalent. For purposes of this definition, partner approval does not include
any partner approvals that are part of the firm’s normal approval and quality control review procedures
applicable to a partner.
This definition is solely for the purpose of applying the “Independence Rule” [1.200.001] and its
interpretations and should not be used or relied upon in any other context, including the determination of
whether the partner equivalent is an owner of the firm. [Prior reference: paragraph .28 of ET section 92.]
Effective Date
This definition is effective for engagements covering periods beginning on or after December 15, 2014.
.39
Period of the professional engagement. The period begins when a member either signs an initial
engagement letter or other agreement to perform attest services or begins to perform an attest engagement
for a client, whichever is earlier. The period lasts for the entire duration of the professional relationship,
which could cover many periods, and ends with the formal or informal notification, either by the member or
client, of the termination of the professional relationship or by the issuance of a report, whichever is later.
Accordingly, the period does not end with the issuance of a report and recommence with the beginning of
the following year’s attest engagement. [Prior reference: paragraph .29 of ET section 92]
.40
Professional services. Include all services requiring accountancy or related skills that are performed
by a member for a client, an employer, or on a volunteer basis. These services include, but are not
limited to accounting, audit and other attest services, tax, bookkeeping, management consulting, financial
management, corporate governance, personal financial planning, business valuation, litigation support,
educational, and those services for which standards are promulgated by bodies designated by Council.
[Prior reference: paragraph .31 of ET section 92]
.41
Public interest entities. All of the following:
a. All listed entities, including entities that are outside the United States whose shares, stock, or debt are
quoted or listed on a recognized stock exchange or marketed under the regulations of a recognized
stock exchange or other equivalent body.
b. Any entity for which an audit is required by regulation or legislation to be conducted in compliance
with the same independence requirements that apply to an audit of listed entities (for example,
requirements of the SEC, the PCAOB, or other similar regulators or standard setters).
Members may wish to consider whether additional entities should also be treated as public interest entities
because they have a large number and wide range of stakeholders. Factors to be considered may include
•
the nature of the business, such as the holding of assets in a fiduciary capacity for a large number of
stakeholders;
•
size; and
•
number of employees.
15
Preface: Applicable to All Members
Members should refer to the independence regulations of applicable authoritative regulatory bodies when
a member performs attest services and is required to be independent of the client under such regulations.
[Prior reference: paragraph .20 of ET section 100-1]
.42
Public practice. Consists of the performance of professional services for a client by a member or member’s
firm. [Prior reference: paragraph .30 of ET section 92]
.43
Safeguards. Actions or other measures that may eliminate a threat or reduce a threat to an acceptable
level. [Prior reference: paragraph .20 of ET section 100-1]
.44
Share-based compensation arrangements. As defined in the FASB ASC glossary under the term sharebased payment arrangements. [Prior reference: paragraph .02 ET section 101]
.45
Significant influence. As defined in FASB ASC 323-10-15. [Prior reference: paragraph .32 of ET section
92]
.46
Source documents. The documents upon which evidence of an accounting transaction are initially
recorded. Source documents are often followed by the creation of many additional records and reports that
do not, however, qualify as initial recordings. Examples of source documents are purchase orders, payroll
time cards, and customer orders. [Prior reference: footnote 17 in paragraph .05 of ET section 101]
.47
Third-party service provider. All of the following:
a. An entity that the member does not control, individually or collectively with his or her firm or with
members of his or her firm.
b. An individual not employed by the member who assists the member in providing professional
services to clients (for example, bookkeeping, tax return preparation, consulting, or attest services,
including related clerical and data entry functions). [Prior reference: paragraphs .224–.225 of ET
section 191, .023–.024 of ET section 291, and .001–.002 of ET section 391]
.48
Those charged with governance. The person(s) or organization(s) (for example, a corporate trustee)
with responsibility for overseeing the strategic direction of the entity and the obligations related to the
accountability of the entity. This includes overseeing the financial reporting process. Those charged with
governance may include management personnel (for example, executive members of a governance board
or an owner-manager).
When an interpretation requires communicating with those charged with governance, the member should
determine the appropriate person(s) within the entity’s governance structure with whom to communicate,
based on the nature and importance of the particular circumstances and matter to be communicated. If
the member communicates with a subgroup of those charged with governance (for example, an audit
committee or an individual), the member should determine whether communication with all of those
charged with governance is also necessary, so that they are adequately informed. [Prior reference:
paragraph .33 of ET section 92]
Effective Date
This definition is effective April 30, 2014.
.49
Threat(s). In connection with independence, threats are relationships or circumstances that could
impair independence. In connection with any rule but the “Independence Rule” [1.200.001], threats
are relationships or circumstances that could compromise a member’s compliance with the rules. [Prior
reference: paragraph .10 of ET section 100-1]
Effective Date
16
Preface: Applicable to All Members
When this definition is used in connection with any rule but the “Independence Rule” it is effective
December 15, 2014.
0.500 Nonauthoritative Guidance
.01
The code is the only authoritative source of AICPA ethics rules and interpretations. The staff of the
Professional Ethics Division has issued nonauthoritative guidance to assist members and others in their
implementation of the code. Such guidance does not amend or override the code. Further, the guidance
is not meant to be exhaustive and does not establish best practices, set standards, or serve as official
pronouncements of the AICPA. These documents were not approved in accordance with normal due
process, which requires proposed changes to be exposed to the public and requires consideration of
members’ and others’ comments.
.02
References to relevant nonauthoritative guidance, when available, are provided throughout the code in
boxed text at the end of the applicable interpretation. [No prior reference: new content]
Effective Date
.03
Effective December 15, 2014.
0.600 New, Revised, and Pending Interpretations and Other Guidance
0.600.010 New and Revised Interpretations and Other Guidance
.01
Periodically, new or revised authoritative ethics interpretations and other guidance are issued. Publication
of the text of a new or revised pronouncement or a notice with a link to the text of a new or revised
authoritative interpretation and other guidance in the Journal of Accountancy constitutes notice to
members. Hence, the effective date of the interpretation and other guidance is the last day of the month
in which the pronouncement or notice is published in the Journal of Accountancy, unless otherwise noted.
The Professional Ethics Division takes into consideration the time that would have been reasonable for the
member to comply with the pronouncement. This section lists the citation and title of any new or revised
interpretation or other guidance for a period of 12 months after its effective date. When an interpretation
or other guidance is not yet effective, it will appear as a pending interpretation or other guidance (see
“Pending Interpretations and Other Guidance” [0.600.020]).
•
“Disclosing Client Information in Connection With a Review or Acquisition of the Member’s
Practice” [1.700.050]. (Revised August, 2016. Effective October 31, 2016)
•
“Unsolicited Financial Interest” interpretation [1.240.020]. (Revised June 2016. Effective upon
revision.)
•
“Firm Mergers and Acquisitions” interpretation [1.220.040]. (Added October 2015. Effective for
mergers or acquisitions with a closing date on or after January 31, 2016. Early implementation is
allowed.)
•
“Application of AICPA Code” [0.200.020]. (Revised January 2015. Effective March 31, 2016, early
implementation allowed.)
•
“Breach of an Independence Interpretation” [1.298]. (Added January 2015. Effective March 31, 2016,
early implementation allowed.)
•
“Breach of an Independence Interpretation” [1.298.010]. (Added January 2015. Effective March 31,
2016, early implementation allowed.)
•
“Conceptual Framework for Members in Public Practice” [1.000.010]. (Issued June 2014. Effective
December 15, 2015. Early implementation is allowed provided the member has implemented the
revised code.)
17
Preface: Applicable to All Members
•
“Application of the Conceptual Framework for Members in Public Practice and Ethical Conflicts”
interpretation [1.100.005] of the “Integrity and Objectivity Rule” (Issued June 2014. Paragraphs .01
and .02 are effective December 15, 2015, and early implementation is allowed provided the member
has implemented the revised code.)
•
“Application of the Conceptual Framework for Members in Public Practice and Ethical Conflicts”
interpretation [1.300.005] of the “General Standards Rule.” (Issued June 2014. Paragraphs .01 and
.02 are effective December 15, 2015, and early implementation is allowed provided the member has
implemented the revised code.)
•
“Application of the Conceptual Framework for Members in Public Practice and Ethical Conflicts”
interpretation [1.310.005] of the “Compliance with Standards Rule.” (Issued June 2014. Paragraphs .01
and .02 are effective December 15, 2015, and early implementation is allowed provided the member
has implemented the revised code.)
•
“Application of the Conceptual Framework for Members in Public Practice and Ethical Conflicts”
interpretation [1.320.005] of the “Accounting Standards Rule.” (Issued June 2014. Paragraphs .01 and
.02 are effective December 15, 2015, and early implementation is allowed provided the member has
implemented the revised code.)
•
“Application of the Conceptual Framework for Members in Public Practice and Ethical Conflicts”
interpretation [1.400.005] of the “Acts Discreditable Rule.” (Issued June 2014. Paragraphs .01 and
.02 are effective December 15, 2015, and early implementation is allowed provided the member has
implemented the revised code.)
•
“Application of the Conceptual Framework for Members in Public Practice and Ethical Conflicts”
interpretation [1.510.005] of the “Contingent Fees Rule.” (Issued June 2014. Paragraphs .01 and .02
are effective December 15, 2015, and early implementation is allowed provided the member has
implemented the revised code.)
•
“Application of the Conceptual Framework for Members in Public Practice and Ethical Conflicts”
interpretation [1.520.005] of the “Commissions and Referral Fees Rule.” (Issued June 2014.
Paragraphs .01 and .02 are effective December 15, 2015, and early implementation is allowed provided
the member has implemented the revised code.)
•
“Application of the Conceptual Framework for Members in Public Practice and Ethical Conflicts”
interpretation [1.600.005] of the “Advertising and Other Forms of Solicitation Rule.” (Issued June
2014. Paragraphs .01 and .02 are effective December 15, 2015 and early implementation is allowed
provided the member has implemented the revised code.)
•
“Application of the Conceptual Framework for Members in Public Practice and Ethical Conflicts”
interpretation [1.700.005] of the “Confidential Client Information Rule.” (Issued June 2014.
Paragraphs .01 and .02 are effective December 15, 2015, and early implementation is allowed provided
the member has implemented the revised code.)
•
“Application of the Conceptual Framework for Members in Public Practice and Ethical Conflicts”
interpretation [1.800.005] of the “Form of Organization and Name Rule.” (Issued June 2014.
Paragraphs .01 and .02 are effective December 15, 2015, and early implementation is allowed provided
the member has implemented the revised code.)
•
“Conceptual Framework for Members in Business” [2.000.010]. (Issued June 2014. Effective
December 15, 2015. Early implementation is allowed provided the member has implemented the
revised code.)
•
“Application of the Conceptual Framework for Members in Business and Ethical Conflicts”
interpretation [2.100.005] of the “Integrity and Objectivity Rule.” (Issued June 2014. Paragraphs .01
18
Preface: Applicable to All Members
and .02 are effective December 15, 2015, and early implementation is allowed if the member has
implemented the revised code.)
•
“Application of the Conceptual Framework for Members in Business and Ethical Conflicts”
interpretation [2.300.005] of the “General Standards Rule.” (Issued June 2014. Paragraphs .01 and
.02 are effective December 15, 2015, and early implementation is allowed provided the member has
implemented the revised code.)
•
“Application of the Conceptual Framework for Members in Business and Ethical Conflicts”
interpretation [2.310.005] of the “Compliance with Standards Rule.” (Issued June 2014. Paragraphs .01
and .02 are effective December 15, 2015, and early implementation is allowed provided the member
has implemented the revised code.)
•
“Application of the Conceptual Framework for Members in Business and Ethical Conflicts”
interpretation [2.320.005] of the “Accounting Standards Rule.” (Issued June 2014. Paragraphs .01 and
.02 are effective December 15, 2015, and early implementation is allowed provided the member has
implemented the revised code.)
•
“Application of the Conceptual Framework for Members in Business and Ethical Conflicts”
interpretation [2.400.005] of the “Acts Discreditable Rule.” (Issued June 2014. Paragraphs .01 and
.02 are effective December 15, 2015, and early implementation is allowed provided the member has
implemented the revised code.)
•
Revised paragraph .02 of “Definitions” [0.400] (Revised October, 2015. Effective October 31, 2015.)
Effective Date
.02
Paragraph .01, excluding the bulleted text, is effective December 15, 2014.
0.600.020 Pending Interpretations and Other Guidance
.01
Periodically, new or revised authoritative ethics interpretations and other guidance are issued. This section
lists the titles and citations of any pending new or revised interpretations or other guidance until they
are effective and notes whether early application is permitted or encouraged. Once the interpretation or
other guidance becomes effective, it will appear under the “New and Revised Interpretation and Other
Guidance” section of the preface [0.600.010].
•
“Transfer of Files and Return of Client Records in Sale, Transfer, Discontinuance or Acquisition of a
Practice” [1.400.205]. (Added August 2016. Effective June 30, 2017. Early implementation is allowed)
•
“Disclosure of Commissions and Referral Fees” [1.520.080]. (Added August 2016. Effective for
commission or a referral fee arrangements entered into on or after January 31, 2017.)
Effective Date
.02
Paragraph .01, excluding the bulleted text, is effective December 15, 2014.
0.700 Deleted Interpretations and Other Guidance
.01
The following interpretations and other guidance were deleted from the code during the 10 years prior
to the 2014 edition:
•
Definition of holding out (ET sec. 92 par. .12) (Deleted March 2013, effective May 31, 2013)
•
Ethics Ruling No. 65, “Use of the CPA Designation by Member Not in Public Practice” (ET sec. 191
par. .130) (Deleted March 2013, effective May 31, 2013)
19
Preface: Applicable to All Members
•
Ethics Ruling No. 38, “CPA Title, Controller of Bank” (ET sec. 591 par. .075–.076) (Deleted March
2013, effective May 31, 2013)
•
Ethics Ruling No. 78, “Letterhead: Lawyer-CPA” (ET sec. 591 par. .155–.156) (Deleted March 2013,
effective May 31, 2013)
•
Ethics Ruling No. 134, “Association of Accountants Not Partners” (ET sec. 591 par. .267–.268)
(Deleted August 2012)
•
Ethics Ruling No. 74, “Audits, Reviews, or Compilations and a Lack of Independence” (ET sec. 191
par. .148–.149) (Deleted April 2012).
•
Ethics Ruling No. 135, “Association of Firms Not Partners” (ET sec. 591 par. .269–.270) (Deleted
April 2012).
•
Interpretation No. 101-8, “Effect on Independence of Financial Interests in Nonclients Having Investor
or Investee Relationships With a Covered Member’s Client” (ET sec. 101 par. .10) (Deleted November
2011. Reestablished and effective October 31, 2012 until the earlier of January 1, 2014, or adoption
of Interpretation 101-18).
•
Ethics Ruling No. 9, “Member as Representative of Creditor’s Committee” (ET sec. 191
par. .017–.018) (Deleted November 2011)
•
Ethics Ruling No. 10, “Member as Legislator” (ET sec. 191 par. .019–.020) (Deleted November 2011)
•
Ethics Ruling No. 12, “Member as Trustee of Charitable Foundation” (ET sec. 191 par. .023–.024)
(Deleted November 2011)
•
Ethics Ruling No. 16, “Member on Board of Directors of Nonprofit Social Club” (ET sec. 191
par. .031–.032) (Deleted November 2011)
•
Ethics Ruling No. 19, “Member on Deferred Compensation Committee” (ET sec. 191 par. .037–.038)
(Deleted November 2011)
•
Ethics Ruling No. 21, “Member as Director and Auditor of an Entity’s Profit Sharing and Retirement
Trust” (ET sec. 191 par. .041–.042) (Deleted November 2011. Reestablished and effective October
31, 2012 until the earlier of January 1, 2014, or adoption of Interpretation 101-18)
•
Ethics Ruling No. 29, “Member as Bondholder” (ET sec. 191 par. .057–.058) (Deleted November
2011)
•
Ethics Ruling No. 38, “Member as Co-Fiduciary With Client Bank” (ET sec. 191 par. .075–.076)
(Deleted November 2011. Reestablished and effective October 31, 2012 until the earlier of January
1, 2014, or adoption of Interpretation 101-18)
•
Ethics Ruling No. 48, “Faculty Member as Auditor of a Student Fund” (ET sec. 191 par. .095–.096)
(Deleted November 2011)
•
Ethics Ruling No. 60, “Employee Benefit Plans—Member’s Relationships With Participating
Employer,” (ET sec. 191 par. .119–.120) (Deleted November 2011. Reestablished and effective
October 31, 2012 until the earlier of January 1, 2014, or adoption of Interpretation 101-18)
•
Ethics Ruling No. 69, “Investment With a General Partner” (ET sec. 191 par. .138–.139) (Deleted
November 2011. Reestablished and effective October 31, 2012 until the earlier of January 1, 2014,
or adoption of Interpretation 101-18)
20
Preface: Applicable to All Members
•
Ethics Ruling No. 81, “Member’s Investment in a Limited Partnership” (ET sec. 191 par. .162–.163)
(Deleted November 2011. Reestablished and effective October 31, 2012 until the earlier of January
1, 2014, or adoption of Interpretation 101-18)
•
Ethics Ruling No. 98, “Member’s Loan From a Nonclient Subsidiary or Parent of an Attest Client” (ET
sec. 191 par. .196–.197) (Deleted November 2011. Reestablished and effective October 31, 2012 until
the earlier of January 1, 2014, or adoption of Interpretation 101-18)
•
Ethics Ruling No. 103, “Attest Report on Internal Controls” (ET sec. 191 par. .206–.207) (Deleted
November 2011)
•
Ethics Ruling No. 106, “Member Has Significant Influence Over an Entity That Has Significant
Influence Over a Client” (ET sec. 191 par. .212–.213) (Deleted November 2011. Reestablished and
effective October 31, 2012 until the earlier of January 1, 2014, or adoption of Interpretation 101-18)
•
Ethics Ruling No. 111, “Employee Benefit Plan Sponsored by Client” (ET sec. 191 par. .222–.223)
(Deleted November 2011. Reestablished and effective October 31, 2012 until the earlier of January
1, 2014, or adoption of Interpretation 101-18)
•
Ethics Ruling No. 11, “Applicability of Rule 203 to Members Performing Litigation Support
Services” (ET sec. 291 par. .021–.022) (Deleted November 2011)
•
Ethics Ruling No. 2, “Fees: Collection of Notes Issued in Payment” (ET sec. 591 par. .003–.004)
(Deleted November 2011)
•
Ethics Ruling No. 33, “Course Instructor” (ET sec. 591 par. .065–.066) (Deleted November 2011)
•
Ethics Ruling No. 108, “Member Interviewed by the Press” (ET sec. 591 par. .215–.216) (Deleted
November 2011)
•
Ethics Ruling No. 117, “Consumer Credit Company Director” (ET sec. 591 par. .233–.234) (Deleted
November 2011)
•
Ethics Ruling No. 140, “Political Election” (ET sec. 591 par. .279–.280) (Deleted November 2011)
•
Ethics Ruling No. 144, “Title: Partnership Roster” (ET sec. 591 par. .287–.288) (Deleted November
2011)
•
Ethics Ruling No. 176, “Member’s Association With Newsletters and Publications” (ET sec. 591
par. .351–.352) (Deleted November 2011)
•
Ethics Ruling No. 177, “Data Processing: Billing Services” (ET sec. 591 par. .353–.354) (Deleted
November 2011)
•
Ethics Ruling No. 179, “Practice of Public Accounting Under Name of Association or Group” (ET
sec. 591 par. .357–.358) (Deleted November 2011)
•
Ethics Ruling No. 101, “Client advocacy and Expert Witness Services” (ET sec. 191 par. .202–.203)
(Deleted July 2007)
•
Ethics Ruling No. 182, “Termination of Engagement Prior to Completion” (ET sec. 591 par. .363–.364)
(Deleted April 2006).
•
Ethics Ruling No. 1, “Acceptance of a Gift” (ET sec. 191 par. .001–.002) (Deleted January 2006).
•
Ethics Ruling No. 35, “Stockholder in Mutual Funds” (ET sec. 191 par. .069–.070) (Deleted December
2005).
21
Preface: Applicable to All Members
•
Ethics Ruling No. 36, “Participant in Investment Club” (ET sec. 191 par. .071–.072) (Deleted
December 2005).
•
Ethics Ruling No. 79, “Member’s Investment in a Partnership That Invests in Client” (ET sec. 191
par. .158–.159) (Deleted December 2005).
•
Ethics Ruling No. 109, “Member’s Investment in Financial Services Products that Invest in
Clients” (ET sec. 191 par. .218–.219) (Deleted December 2005).
•
Ethics Ruling No. 66, “Member’s Retirement or Savings Plan Has Financial Interest in Client” (ET
sec. 191 par. .132–.133) (Deleted December 2005).
•
Ethics Ruling No. 68, “Blind Trust” (ET sec. 191 par. .136–.137) (Deleted December 2005).
The content of these deleted standards is available in a nonauthoritative document at http://aicpa.org/InterestAreas/
ProfessionalEthics/Community/DownloadableDocuments/Deletions.pdf.
22
Part 1
Members in Public Practice
1.000 Introduction
.01
Part 1 of the Code of Professional Conduct (the code) applies to members in public practice. Accordingly,
when the term member is used in part 1 of the code, the requirements apply only to members in public
practice. When a member in public practice is also a member in business (for example, serves as a member
of an entity’s board of directors), the member should also consult part 2 of the code, which applies to a
member in business.
.02
Government auditors within a government audit organization who audit federal, state, or local governments
or component units thereof, that are structurally located within the government audit organization, are
considered in public practice with respect to those entities provided the head of the audit organization
meets one of the organizational structures described in paragraph .07b(i–iii) of the “Client” definition
[0.400.07]. [No prior reference: new content]
Effective Date
.03
Effective December 15, 2014.
1.000.010 Conceptual Framework for Members in Public Practice
Introduction
.01
Members may encounter various relationships or circumstances that create threats to the member’s
compliance with the rules. The rules and interpretations seek to address many situations; however, they
cannot address all relationships or circumstances that may arise. Thus, in the absence of an interpretation
that addresses a particular relationship or circumstance, a member should evaluate whether that relationship
or circumstance would lead a reasonable and informed third party who is aware of the relevant information
to conclude that there is a threat to the member’s compliance with the rules that is not at an acceptable level.
When making that evaluation, the member should apply the conceptual framework approach as outlined
in this interpretation.
.02
The code specifies that in some circumstances no safeguards can reduce a threat to an acceptable level.
For example, the code specifies that a member may not subordinate the member’s professional judgment
to others without violating the “Integrity and Objectivity Rule” [1.100.001]. A member may not use the
conceptual framework to overcome this prohibition or any other prohibition or requirement in the code.
.03
The “Conceptual Framework for Independence” interpretation [1.210.010] of the “Independence
Rule” [1.200.001] provides authoritative guidance that members should use when making decisions on
independence matters that are not explicitly addressed by the “Independence Rule” and its interpretations.
Definitions Used in Applying the Conceptual Framework
.04
Acceptable level. A level at which a reasonable and informed third party who is aware of the relevant
information would be expected to conclude that a member’s compliance with the rules is not compromised.
.05
Safeguards. Actions or other measures that may eliminate a threat or reduce a threat to an acceptable level.
.06
Threats. Relationships or circumstances that could compromise a member’s compliance with the rules.
Conceptual Framework Approach
23
Part 1 — Members in Public Practice
.07
Under the conceptual framework approach, members should identify threats to compliance with the rules
and evaluate the significance of those threats. Members should evaluate identified threats both individually
and in the aggregate because threats can have a cumulative effect on a member’s compliance with the
rules. Members should perform three main steps in applying the conceptual framework approach:
a. Identify threats. The relationships or circumstances that a member encounters in various
engagements and work assignments will often create different threats to complying with the rules.
When a member encounters a relationship or circumstance that is not specifically addressed by a rule
or an interpretation, under this approach, the member should determine whether the relationship or
circumstance creates one or more threats, such as those identified in paragraphs .10–.16 that follow.
The existence of a threat does not mean that the member is in violation of the rules; however, the
member should evaluate the significance of the threat.
b. Evaluate the significance of a threat. In evaluating the significance of an identified threat, the
member should determine whether a threat is at an acceptable level. A threat is at an acceptable
level when a reasonable and informed third party who is aware of the relevant information would
be expected to conclude that the threat would not compromise the member’s compliance with
the rules. Members should consider both qualitative and quantitative factors when evaluating the
significance of a threat, including the extent to which existing safeguards already reduce the threat to
an acceptable level. If the member evaluates the threat and concludes that a reasonable and informed
third party who is aware of the relevant information would be expected to conclude that the threat
does not compromise a member’s compliance with the rules, the threat is at an acceptable level,
and the member is not required to evaluate the threat a…

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