Every industry has a set of rules, or code of conduct, that guides it and establishes rules to prevent professionals, as much as possible, to be ethical and true to their work. In the accounting world the AICPA, The American Institute of Certified Public Accountants, Code of Professional Conduct is considered to be the foundation of ethical reasoning in accounting. This is so because it is a code that has been established and agreed to by members of the AICPA. The key importance to this is that it’s not a regulatory body issuing rules, the Code was established and agreed to voluntarily by CPAs who are members of the AICPA. The main objectives of the AICPA's Code of Professional Conduct states that a distinguishing mark of a profession is acceptance of its responsibility to the public. This imposes a public interest responsibility for CPAs. The public interest is defined as the collective well-being of the community of people and institutions the profession serves.
First let’s understand what may lead to unethical practices. A few situations that may lead to unethical practices would be misleading financial analysis for personal gain, misuse of funds, overstating revenue, and understating expenses, overstating the value of corporate assets or understating the existence of liabilities, sometimes with the cooperation of officials in other corporations or affiliates. There are several reasons for someone or a company to consider preforming unethical behavior, such as for self-interest—greed, an accountant may embezzle funds from his or her employer for financial gain, the Chief Financial Officer of a publicly traded corporation may prepare financial statements to appear as though the company is performing much better than it actually is, because he or she wants their stock portfolio to increase, an accountant may feel pressured from his or her client to report false information or may be a Chief financial officer is experiencing demand for improvements from the board of directors, the company’s president, owners, or stockholders; or he or she may be in fear of losing their job.
Back in 2002, the scandal of Enron and the WorldCom were two prime examples of unethical practices. Enron as we know was accused of numerous deals that were considered to be unethical, which included concealing debts so they would not be reflected on the company’s accounts. WorldCom had so many unethical and fraudulent accounts that it led to one of the largest bankruptcy in history. Scandals as such, led to enforcing strictness of the Code, and increase of accountability in the CPA profession. The three most important purposes of the AICPA Code of Professional Conduct in my view are the following:
1. Rules related to Due Care
2. Rules related to Objectivity and Independence
3. Rules related to the Public Interest
Reason 1 Due Care:
Due Care simply refers to the degree of care which is expected from a reasonable person under the circumstances. CPAs should always exercise due care especially when working and even when planning. This helps create a trust in the client that the CPA is aware of all situations. This also helps the client be confident in the results produced by the CPA. As the Code states “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. Competence is derived from a synthesis of education and experience. It begins with a mastery of the common body of knowledge required for...