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CPAs’ Responsibilities: Article IV Objectivity and Independence According to the CPA’s Code of Professional Conduct -A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services. What does it mean to be objective? Is it possible to be truly objective? Or is everything we see, do, or say affected by our values, beliefs, and our preferences for certain outcomes? When someone says, “I’m going to be totally objective …,” how many of you, like me, prepare for an expression of personal feelings, prejudice, or interpretation obviously (at least to us) meant to persuade us to the speaker’s subjective point of view? When I have asked CPAs to recount instances of objectivity in their careers, most have identified situations where they felt compelled to deliver bad news to a client or employer based on an analysis they had performed. I cannot recall a single occasion when a CPA classified delivering happy news to a client or employer as an exercise in objectivity. Our experiences condition us to think that audit or accounting failures occur because of a lapse in objectivity, a conflict of interest, or a breach of independence. In other words, accountants and auditors must be able to say no when faced by overwhelming pressure to say yes. Another clue to the meaning of objectivity lies in its link to conflicts of interest and auditor independence. Although conflicts of interest and independence in fact deal with a person’s state of mind, which is usually unknowable, we generally gauge whether we have a conflict or have lost independence by assessing the conclusions that others would draw from the appearance of the situation. While objectivity may be a state of mind, what really count are the perceptions in the minds of others. The ‘Fingerpost’ Concept The late-16th-century English philosopher Sir Francis Bacon, vexed by the bias in applied scientific experimentation, advocated a class of people to act as “fingerposts.” The English government supported legitimate scientific research through the Royal Academy of Sciences, but had difficulty ascertaining whether aspirants’ claims were of legitimate scientific merit. Fingerposts were financially independent gentlemen with no interest in the success or failure of a scientific endeavor or the scientist conducting it. Their role was to observe experimentation objectively and report independently to the funding committee. Established scientists eventually sought fingerposts with impeccable reputations for objectivity and honesty to observe their work in order to build credibility with the committee. Charlatans also sought to purchase credibility in order to receive even more lucrative funding. The academy effectively ostracized fingerposts that “sold out.” We currently face problems related to objectivity, conflicts of interest, and independence that threaten the practice of accountancy. So far, the result has been an increasing number of rules that forbid certain practices or limit the scope of services a CPA can render an audit or attest client. Efforts to create a conceptual framework for independence, or even to establish fundamental principles of independence, have been poorly received by those outside accounting. External critics of the threats-and-safeguards approach to independence express cynicism about its viability. In their experience, firms underestimate or ignore threats and overestimate the power of safeguards. For example, how do you safeguard the career of someone who says no when it is in everyone else’s best short-term financial interest to hear a yes? Accountants cannot ignore the realities of others’ perceptions about independence and objectivity. When others express concerns about possible biases, we must listen. Our objectivity exists in the minds of others, not in our assertions about ourselves. As in the case of the fingerpost, objectivity and independence flow from individual commitment to a group of people with similar values and the desire to be held in esteem and accepted by them. Integral to Bacon’s plan was the financial independence of the fingerpost: Their livelihood did not come from their “professional” observations of experiments. Those suggesting that an independent party hire and pay auditors express the modern version of Bacon’s innovation. Moreover, the Sarbanes-Oxley Act has heightened the awareness of public accountants and internal accountants about the preeminent role of an independent audit committee of a board of directors in the oversight of financial reporting functions. The Pendulum of Professionalism Whether working internally as an accountant or externally as an auditor, an individual’s most powerful potential incentive to be objective and independent, as well as the most powerful potential protector of such an individual when exercising objectivity and independence, is a strong profession. A strong profession, however, thrives only when membership in it outweighs the demands and rewards of current employment. When the pendulum swings back to professional orientation, then we will see progress on independence principles. Until then, the demand for additional rules will continue.
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