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Code of professional ethics by american institute of certified public accountants

Code of Professional Ethics by American Institute of Certified Public Accountants


"A code of professional ethics is a voluntary assumption of self discipline

above and beyond the requirements of the law. The Code of Ethical Conduct serves

the highly practical purpose to notify the public that the profession will

protect the public interest" (Carey, Doherty: p 3). When people need a doctor, a

lawyer or a certified public accountant, they seek someone whom they can trust

to do a good job, not for himself but for them. People assume that the hired

professional is qualified since they cannot appraise him. They must take it on

faith that he is competent. That is why professionals are distinguished from

businesses and why there is a need for ethical regulations.

The Code of Professional Ethics

The Code of Professional Ethics for public accountants was developed by the

American Institute of Public Accountant and includes four different categories.

The first, Concepts of Professional Ethics, establishes major requirements for

CPAs in different areas of their day-to-day professional activities. The main

parts of the Code are: Independence, Integrity and Objectivity in the practice

of public accounting, Competence and technical standards, Responsibilities to

clients, Responsibilities to colleagues and Other responsibilities and

Practices. Independence has always been the fundamental concept to the

accounting profession. In fact it is the most essential to the practice of all

professions. The financial reports produced by CPAs would be of little value to

the public unless CPAs maintain their independence. Independence has always been

associated with integrity and objectivity. Since faults on financial

statements may be the result of either a honest mistake or a lack of integrity

it is imperative to associate the notion of independence with the objectivity

and integrity. As part of the requirements by the Code of ethics, CPA should

avoid any relationships that may result in the CPA's becoming dependent on the

particular client. Such relationships include financial interests and client

management. It is very important that the opinion of the CPA reflects the

results of operating decisions taken by the client and not any underlying ideas

which may be the case if a CPA takes part in the decision making process of the


Another important issue discussed in the Code of ethics is competence and

responsibility of CPAs. It establishes a basic ethical obligation that a CPA

shall not render any services which he is not competent to render. Within this

topic, the code mentions continuing improvement of the competence of CPAs in all

areas in which they engage. In fact, the requirements of competence are

established by law. If a man renders a service he is not familiar with, he

commits a fraud on the public (However, CPAs are supposed in a reasonable manner

to carry this principle beyond). The code of ethics assumes that in situations

where CPAs face a problem he/she is not familiar with, they may ask other

practitioners for help. A CPA may drop the case only when his/her efforts prove

to be futile. From the other standpoint, there are always unknowns in every

profession. Thus, to assume that every practitioner is completely knowledgeable

would be inaccurate.

Responsibilities to Clients include CPAs' maintaining their independence,

integrity and objectivity regardless of any personal interest that previously

exists. CPAs should hold in confidence, all the information about their clients

which they acquire during engagements. However the Code states that CPAs should

insist on disclosing in financial reports, all information necessary for the

fair presentation of the clients' affairs.

The accountancy laws in some states of the USA contain provisions which do not

require disclosing information obtained during engagement by accountant in any

court. These clauses directly interfere with federal jurisdiction. Federal

courts have held that a "state statute conferring privileged status on

communications to accountants does not apply to a Federal administrative

proceedings" (Carey and Doherty: p. 133) and may require disclosure of the

information by CPA.

With reference to the Responsibilities to Colleagues, good relations within a

profession are very important because they aid in the exchange information and

opinions. "The public confidence in professional accounting is gained mainly by

cumulative accomplishments of all CPAs" (AICPA, Section 55, article 01).

Successful professionals in accounting do not hide secrets from what they have

learned from their experience. They share their ideas with other practitioners

who address them directly or publish articles in professional publications,

through speeches and professional meetings.

The code prescribes assisting colleagues in complying with the code of ethics

and disclosing cases of its enforcement.

Basically, the principles of responsibilities to fellow practitioners described

in the Code do not establish the limits of professional conduct. They define the

area and basic foundations of the professional courtesy.

Finally the code defines general principles of ethical conduct for professional

accountants. These responsibilities are not discussed in other parts of the Code

but they underlie all ethical principles mentioned in the text of the Code. They

establish basic regulations of rivalry inside the profession and also establish

the ethical obligation of CPAs to clients in determining fair fees for their

services, and other principles.

The foundation of public accounting is the client confidence and those people

who are using financial statements produced by CPAs. To keep the confidence of

clients, CPAs shall maintain their independence and objectivity. The standards

of independence require that the CPA does not subordinate his judgement on to

that of the client keeping in mind that there are other CPAs who are knocking at

his client's door. One of the other principles mentioned in the Code is the

renunciation of promotional methods of the commercial world which increase the

pressure on CPAs and will lead to conformity with the letter of the code evading

its spirit.

CPA shall not be involved with business activities that are incompatible with

the practice of public accounting. These activities include selling securities

because this may include promotional activities for a public accounting practice

and consequently negatively influence the independence of CPAs.

The next category of the Codes of professional ethics include Rules of Conduct

which establish more detailed regulations of the principles described in the

first part of the Code. These rules become effective only after approval of the

membership. A member who is found guilty in enforcing Rules of conduct may be

expelled or suspended by the Trial Board. The Rules of conduct have four major

parts as mentioned in the first part of the Code under the Concepts of

Professional ethics. Each section of the Rules of Conduct has a subset of

particular cases given under Ethics Rulings.

In addition to the standards described above, state CPA institutions and other

government establish their own ethical standards.


Professional ethics is concerned with human behaviour and human relations. As

human society becomes more complicated, so do the codes of professional conduct.

The purpose of the rules is to attract and increase public confidence and

discourage behaviour inconsistent with the image of profession. Public

confidence may even be more important to the public accountant than to any other

professional because CPAs are concerned not only about their clients but also

about those who rely on their reports. The code of ethical conduct provides

members of the profession with the rules that were worked out on the historical

basis to attract the confidence of the public. Therefore, the rules of ethics

are the foundation of public confidence.

Works Cited

John L. Carey and William O. Doherty. Ethical Standards of the Accounting

Profession. New York: American Institute of Certified Public Accountants, 1966

American Institute of Certified Public Accountants. Code of Professional Ethics.

New York: AICPA, 1977

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