Principles of professional conduct for CPA's

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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 company.

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