Ethics in Accounting Week 5 - AICPA Code Purple and Green

Examples of familiarity threats

- a member uses an immediate family's or a close relative's company as a supplier to the employing org - a member may accept an individual's work product with little or no review bc the individual has been producing an acceptable work product for an extended period of time - a member's immediate family or clsoe relative is employed as a member's subordinate - a member regularly accepts gifts or entertainment from a vendor or customer of the employing org

Contingent Fees Rule

A member in public practice shall not - perform for a contingent fee any professional services for, or receive such a fee from a client for whom the member or the member's firm performs. I.e., an audit or review of a financial statement or a compilation of a financial statement when the member expects, or reasonably might expect, that a third party will use the financial statement and the member's compilation report does not disclose a lack of independence, or an examination of prospective financial info, or - prepare an original or amended tax return or claim for a tax refund for a contingent fee for any client.

Commissions and Referral Fees Rule

A member in public practice shall not for a commission recommend or refer to a client any product or service, or for a commission recommend or refer any product or service to be supplied by a client, or receive a commission, when the member or member's firm also performs for that client - an audit or review of a financial statement; or - a compilation of a financial statement when the member expects, or reasonably might expect, that a third party will use the financial statement and the member's compliation report does not disclose a lack of independence; or - an examination of prospective financial info

Negligence in the preparation of financial statements or records

A member shall be considered in violation of the "Acts Discreditable Rule" if the member, by virtue of his or her negligence, does any of the following: a. Makes, or permits or directs another to make, materially false and misleading entries in the financial statements or records of an entity. b. Fails to correct an entity's financial statements that are materially false and misleading when the member has the authority to record an entry. c. Signs, or permits or directs another to sign, a document containing materially false and misleading information

Accounting Principles Rule

A member shall not (1) express an opinion or state affirmatively that the financial statements or other financial data of any entity are presented in conformity with GAAP or (2) state that he or she is not aware of any material modifications that should be made to such statements or data in order for them to be in conformity with GAAP, if such statements or data contain any departure from an accounting principle promulgated by bodies designated by Council to establish such principles that has a material effect on the statements or data taken as a whole. If however, the statements or data contain such a departure and the member can demonstrate that due to unusual circumstances the financial statements or data would otherwise have been misleading, the member can comply with the rule by describing the departure, its approximate effects, if practicable, and the reasons why compliance with the principle would result in a misleading statement

Acts Discreditable Rule

A member shall not commit an act discreditable to the profession

Confidential Info Obtained from Employment or Volunteer actions

A member should maintain the confidentiality of his or her employer's confidential information and should not use or disclose any confidential employer information obtained as a result of an employment relationship, such as discussions with the employer's vendors, customers, or lenders (for example, any confidential information pertaining to a current or previous employer, subsidiary, affiliate, or parent thereof, as well as any entities for which the member is working in a volunteer capacity).

Failure to file a tax return or pay a tax liability

A member who fails to comply with applicable federal, state, or local laws or regulations regarding (a) the timely filing of the member's personal tax returns or tax returns for the member's employer that the member has the authority to timely file or (b) the timely remittance of all payroll and other taxes collected on behalf of others may be considered to have committed an act discreditable to the profession

Governmental Bodies, Commissions, or Other Regulatory Agencies

Many governmental bodies, commissions, or other regulatory agencies have established requirements, such as standards, guides, rules, and regulations, that members are required to follow in the preparation of financial statements or related information. For example, the SEC, the Federal Communications Commission, state insurance commissions, and other regulatory agencies have established such requirements. If a member prepares financial statements or related information (for example, management's discussion and analysis) for purposes of reporting to such bodies, commissions, or regulatory agencies, the member should follow the requirements of such organizations in addition to the applicable financial reporting framework.

Self-interest threats

The threat that a member could benefit, financially or otherwise, from an interest in, or relationship with, the employing organization or persons associated with the employing organization.

self-review threats

The threat that a member will not appropriately evaluate the results of a previous judgment made or service performed or supervised by the member, or an individual in the employing organization and that the member will rely on that service in forming a judgment as part of another service.

Undue Influence threat

The threat that a member will subordinate his or her judgment to that of an individual associated with the employing organization or any relevant third party due to that individual's position, reputation or expertise, aggressive or dominant personality, or attempts to coerce or exercise excessive influence over the member.

Departures from GAAP

There is a strong presumption that adherence to GAAP would, in nearly all instances, result in financial statements that are not misleading

Knowing Misrepresentations in the Preparation of Financial Statements or Records

Threats to compliance would not be at an acceptable level if the member - makes or permits or directs another to make, materially false and misleading entries in an entity's financial statements or records - fails to correct an entity's financial statements or records that are materially false and misleading when the member has the authority to record the entries, or - signs or permits or directs another to go sign, a document containing materially false and misleading info

Disclosure of conflict of interest and consent

When conflict of interest exists, the member should disclose the nature of the conflict to the relevant parties, including to the appropriate levels within the employing org and obtain their consent to undertake the professional service. the member should disclose the conflict of interest and obtain consent even if the member concludes that threats are at an acceptable level. When addressing a conflict of interest, a member is encouraged to seek guidance from within the employing organization or from others, such as a professional body, legal counsel, or another professional accountant.

Responsibility for Affirming that Financial Statements are in Conformity with the Applicable Financial Reporting Framework

a member shall not state affirmatively that an entity's financial statements or other financial data are presented in conformity with GAAP if such statements or data contain any departure from an accounting principle promulgated by a body designated by Council to establish such principles

Examples of undue influence threats

a. A member is pressured to become associated with misleading information. b. A member is pressured to deviate from a company policy. c. A member is pressured to change a conclusion regarding an accounting or a tax position. d. A member is pressured to hire an unqualified individual.

Examples of self-interest threats

a. A member's immediate family or close relative has a financial interest in the employing organization. b. A member holds a financial interest (for example, shares or share options) in the employing organization, and the value of that financial interest is directly affected by the member's decisions. c. A member is eligible for a profit or other performance-related bonus, and the value of that bonus is directly affected by the member's decisions.

Examples of situations in which conflicts of interest may arise

a. Serving in a management or governance position for two employing organizations and acquiring confidential information from one employing organization that could be used by the member to the advantage or disadvantage of the other employing organization b. Undertaking a professional service for each of two parties in a partnership employing the member to assist in dissolving their partnership c. Preparing financial information for certain members of management of the employing organization who are seeking to undertake a management buy-out d. Being responsible for selecting a vendor for the member's employing organization when the member or his or her immediate family member could benefit financially from the transaction e. Serving in a governance capacity or influencing an employing organization that is approving certain investments for the company in which one of those specific investments will increase the value of the personal investment portfolio of the member or his or her immediate family member

Examples of self-review threats

a. When performing an internal audit procedure, an internal auditor accepts work that he or she previously performed in a different position. b. The member accepts the work previously performed by the member, alone or with others, that will be the basis for providing another professional service.

Conflict of interest threats may be created when

a. a member undertakes a professional service related to a particular matter involving two or more parties whose interests with respect to that matter are in conflict, or b. the interests of a member with respect to a particular matter and the interests of a party for whom the member undertakes a professional service related to that matter are in conflict.

Examples of situations in which members are permitted or may be required to disclose confidential employer info or when such disclosure may be appropriate

a. disclosure is permitted by the law and authorized by the employer b. disclosure is required by law, for example, to comply with a validly issued and enforceable subpoena or summons or inform the appropriate public authorities of violations of law that have been discovered d. disclosure is permitted on behlaf of the employer to obtain financing with lenders, communicate with vendors, clients, and customers, or communicate with the employer's external accountant, attorneys, regulators, and other business professionals

what does a party include

an employing org, a vendor, a customer, a shareholder, or other party

Subordination of Judgment

in evaluating the significance of any identified threats, the member should determine, after appropriate research and consultation, whether the result of the position taken by the supervisor or otehr person - fails to comply with professional standards, when applicable - creates a material misrepresentation of fact, or - may violate applicable laws or regulations if threats are at acceptable level then don't need to speak to supervisor, but if they aren't then you should. if the difference of opinion is not resolved after discussing the concerns with the supervisor, the member should discuss with higher levels of management. also consult with legal counsel regarding responsibilities

Integrity and objectivity rule

in the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others

Adverse interest threat

the threat that a member will not act with objectivity bc the member's interests are opposed to the interests of the employing org. an example of this includes a member or the member's immediate family or close relative has a financial or another relationship with a vendor, customer, competitor, or potential acquisition of the employing org

Familiarity threats

the threat that due to a logn or close relationship with a person or an employing org, a member will become too sympathetic to their interests or too accepting of the person's work or employing org's product or service.

Offering or Accepting gifts and entertainment

when a member offers to, or accepts gifts or entertainment from a customer or vendor of the member's employer, self-interest, familiarity, or undue influence threats to the member's compliance with the integrity and objectivity rule exist