CPA Ethics - Common Violations

Tax Professionals' Resource
December 3, 2012 — 4,122 views  
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Recent financial and accounting ethics violations of top companies have brought the issue of accounting ethics into full view. The ethics problems is not industry specific since financial and accounting professionals working at HealthSouth, WorldCom, and Enron were all found guilty of violating the ethical rules that govern their profession. Ethics in accounting are governed by the American Institute of CPA's (AICPA) Code of Professional Conduct. The AICPA periodically reviews its standards and provides updates for accounting professionals; AICPA released the latest update to the standards in 2012. However, there are some standards within the Code of Conduct that are continuous stumbling blocks to many accounting professionals.

Some common violations of CPA ethics relate to conflicts of interest, safeguarding confidential information, and maintaining audit integrity. Conflicts of interest in accounting arise when an accountant conducts professional services for a client and has an interest in the company that would make the accountant not objective. Objectivity is often the key to the effectiveness of professional services rendered such as auditing or financial statement preparation. The key to overcoming this type of ethical violation is transparency. The accountant should provide full written disclosure of any conflicts or perceived conflicts of interest to all relevant stakeholders according to Rule 102-2 Conflicts of Interest.

Accountants are privy to certain confidential information that they should safeguard. They are also held to a standard that they will not use the information for personal gain. For instance, an accountant that is aware of certain financial transactions that will affect the stock market cannot ethically make investments using the information gained through their work with a client. They also should not disclose the information so that their friends and family may gain financial benefits from the client's information. The only way to avoid this ethical dilemma is to decide beforehand that one will not invest using client information. Usually clients have confidentiality agreements for accountants to sign; the accountants should make sure that they and immediate family members do not have any investments dealing with that client.

Maintaining audit integrity is another area in which some accountants fall short ethically. Audits depend on the independent status of the accountant. An accountant that even appears non independent may render an audit void. A violation may even occur when an experienced accountant who has prior knowledge about a client “helps” a less experienced accountant with parts of an independent audit. Transparency is also key to avoiding violating this ethical rule. Accountants must demonstrate that they have recused themselves from working on unauthorized projects. They may also suggest that junior forensic accountants work on audit teams with senior accountants authorized to work on the auditing project.


Tax Professionals' Resource