| CPA
Ethics Challenge
This
column concludes the series on the CPAs’ Code of Professional
Conduct, which began because so many of my exchanges with
CPAs indicated that they had fair knowledge of Rule 101,
Independence, but little or no exposure to the other principles
of the code. They have little opportunity to study the code
while in school, and there is little reason for most to
consider it once they begin working.
Culture
of a Profession
Active
engagement with the ethics of a profession, however, is
necessary to maintain a profession-wide culture. If professional
ethics devolve solely to the standard operating procedures
of the firms and businesses that employ CPAs, then those
firms and businesses, rather than the individuals that practice
the profession, are likely to become the unit of regulation.
In other words, there is a choice to be made: Is accountancy
an activity performed by regulated firms and businesses,
or by regulated professionals employed by firms and businesses?
Currently, evidence abounds that the business culture of
organizations employing CPAs is no substitute for the culture
of a profession.
Fuzzy
Patchwork of Ethical Knowledge
Although
professional ethics is distinct from personal morality and
other codes of behavior, it is normal for individuals’
grasp of professional ethics to reflect their knowledge,
upbringing, education, and understanding. People with different
backgrounds will interpret principles of professional ethics
differently. Moreover, individuals from different eras will
reflect generational differences in their understanding
and interpretation of professional ethics.
CPAs
have always been concerned about professional ethics. The
context for professional ethics in 1896 was far different
from what it became in 1933, 1951, 1978, and 2004. Many
of the ethical precepts from the past were responses to
specific issues that arose from contemporary commercial
practices, and their application was likely different than
today because the prevailing commercial practices were different.
CPAs today interpret ethical precepts from the past in light
of their own current opportunities. As time passes, both
environmental contexts and ethical standards change, while
individuals continue to embrace old ideas, tempered by newer
ones, and all of them interpreted fuzzily because of the
patchwork of overlaid concepts people carry with them as
a product of their education and experience.
Multiple
Ethical Bases
A profession’s
ethics reflects its distinguishing characteristics, which
usually are determined by the essence of its public service.
Legal ethics centers on attorneys’ advocacy role;
medical ethics focuses on doctors’ life-prolonging
role. CPAs are somewhat unique among recognized professions
in that they perform their unique, statutory service, audits,
on one group for the benefit of third parties. In other
professions, the client paying the fee is also the primary
beneficiary of the service.
Although
the culture that developed early in CPA firms supported
the objectivity and independence required to bring credibility
to audited financial statements, it was not long after the
passage of the federal income tax in 1913 that advocacy,
including contingent fee arrangements in certain circumstances,
was adopted as the norm for CPA tax practice. This decision
was not reached easily, because many CPAs at the time preferred
transferring the culture of objectivity and independence
to tax practice rather than adopt the culture of advocacy
associated with attorneys. Since then, the advocacy culture
and the independence culture have coexisted—uneasily
at times—but federal regulators are beginning to address
whether tax advocacy activities for an audit client or those
associated with an audit client impair
independence.
Changes
in the Wind
The
CPAs’ Code of Professional Conduct will come under
scrutiny over the next few years. The code functions at
multiple levels—principles, rules, interpretations,
and rulings—and all levels will be subject to review.
The current expression of the principles was last examined
and articulated in the late 1980s, when trends indicated
that CPA practice would contract in the audit area and expand
in tax advocacy and consulting, and that CPA firms would
become a nexus of wide-ranging professional services. The
current trend, however, refocuses on the narrow, statutory
responsibilities of CPAs rather than their extensive nonstatutory
services. The code deserves to be reexamined in light of
recent and current events.
Readership
Challenge
The
best ideas usually spring from the grassroots rather than
from the top. Your ideas about the code and how it could
be changed to reflect our times are just what is needed.
Please submit your thoughts to rhcolson@nysscpa.org.
As in the past, submissions will be treated as guest editorials
and appear either here on the back page or in Perspectives.
I look forward to your thoughts!
Robert
H. Colson, PhD, CPA
Editor-in-Chief
rhcolson@nysscpa.org
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