October 1999

The Professional Ethics Committee at Work

By Allen L. Fetterman, CPA

Ethics in Action is a new feature of The Trusted Professional to help educate members on ethics issues and provide a greater understanding of the profession's self-disciplinary process. Authored by members of the NYSSCPA Professional Ethics Committee, future columns will summarize actual ethics case investigations, with names and other details changed to protect the identity of the participants. As a prelude to the new feature, this article describes the committee's purpose, structure, and objectives.

Code of Professional Conduct

It is the committee's responsibility to see that the Code of Professional Conduct is fully responsive to the public's and the profession's needs. The committee responds to AICPA ethics exposure drafts, considers AICPA interpretations for adoption, and also initiates its own interpretations.

Most recently, the committee set up a task force to address the impact of alternative practice structures on independence. This culminated in a new proposed ethics interpretation that the committee will present to the Society's Executive Committee later this year.

Education

To educate Society members on professional ethics issues, committee members make presentations and conduct seminars at NYSSCPA events, teach ethics courses for the Foundation for Accounting Education, and write related articles and book reviews.

The committee and the Society's ethics staff members also address written and telephone ethics inquiries, responding to more than a dozen calls from members every day. The Trusted Professional's Ethics and Regulation Q&As column (see below), a recurring feature, highlights examples of members' questions. These inquiries can result in revisions to the code--contingent fees, commissions and referral fees, and records retention are just three recent examples.

Joint Ethics Enforcement Program

The NYSSCPA, like most state societies, has joined forces with the AICPA in the Joint Ethics Enforcement Program (JEEP), which permits a single investigation and, if necessary, a single joint trial board hearing of alleged violations concerning members of both organizations. Through a concurrence process, JEEP is instrumental in ensuring that disciplinary actions are consistent, not only for Society members but for CPAs across the country.

The NYSSCPA Professional Ethics Committee handles most investigations of joint members. The AICPA's ethics division, however, investigates matters of broad national or international interest; alleged violations arising from the Institute's SEC Practice Section; situations involving the federal government or its departments, agencies, and commissions; and cases with members of more than one state society.

Trial board hearings are reserved for more egregious cases where the committee believes suspension or expulsion with publication is appropriate. The AICPA's joint trial board division conducts hearings even when the individual under investigation is not an AICPA member.

Compliance with the Code

The committee also investigates alleged violations to the Code of Professional Conduct that come to the committee's attention through individual complaints, new reports, and government referrals. To ensure due process and consistency in all investigations, the Society's committee follows procedures set out in a manual based on the AICPA's JEEP procedures manual.

The committee meets 11 times a year and devotes a portion of every meeting to investigations from its three subcommittees--Technical Standards, Behavioral Standards, and Records Retention. After Society staff members process a complaint, the relevant subcommittee chair assigns it to a member, who investigates and presents the case to the full committee if he or she finds a violation. The full committee votes on the finding and the disciplinary action, and then submits the case to the AICPA for concurrence. Both the NYSSCPA and AICPA make every effort to reach concurrence, but if concurrence is not reached, each organization acts on the case in its own name. If the investigator finds no violation and the subcommittee chairs agree, the committee closes the case and needs no concurrence from the AICPA.

The disciplinary actions available to the committee are a letter of required corrective action, offer of a settlement agreement, or referral to the trial board. Corrective actions may include requiring the member to attend certain CPE courses or submit additional examples of engagement work product, or any other directive the committee deems appropriate.

To determine the disciplinary action, the committee considers the nature of the violation, the standard in effect at the time it was violated, the effect of the violation on the public and the profession, whether the respondent was knowing and willful, previous violations, the attitude of the respondent, any mitigating circumstances, the disciplinary action's effect on improving the respondent's practices, precedents set by other cases, and consistency from case to case.

Investigations are confidential. Complainants are not informed of the results of investigations that are resolved within the committee. The Joint Trial Board, however, is authorized to give the general membership and the public notice of specific disciplinary actions taken against members. These notices are published in The Trusted Professional and the AICPA's CPA Letter. The Trusted Professional also publishes automatic actions against members under the Society's bylaws.

Professional Ethics Committee members commit a great deal of time and effort to the committee's activities. Members have the satisfaction of actively contributing to the profession's self-regulatory system.

"It is one of the most demanding committees I have ever served on in the Society," Technical Standards Subcommittee Chair Charles Weissman said. "In my opinion, it is also one of the most interesting, challenging, and rewarding."